April 20, 2020 [Reuters] – Oil prices were mixed on Wednesday after the United States reported a 19 million-barrel jump in inventories, the biggest weekly build ever, while forecasts showed global demand crumbling to its lowest levels in a quarter-century due to the coronavirus pandemic.
Brent crude futures were lower, while U.S. crude recovered after dropping through $20 a barrel to trade flat.
The grim figures undercut the weekend agreement between numerous global producers to phase-in a record output cut in coming months, making clear that supply reductions would not be enough to prevent storage from filling and leaving countless barrels stranded.
“We have crude oil backing up in the system in epic fashion,” John Kilduff, a partner at Again Capital in New York, said after the U.S. government’s weekly oil inventory report. “This is probably one of the most bearish, if not darkest reports I’ve ever seen.”
Brent crude dropped $1.17, or 3.9%, to $28.43 a barrel by 1:20 p.m. EDT (1720 GMT). U.S. West Texas Intermediate crude rose 6 cents to $20.17, after hitting an 18-year low earlier in the day of $19.20. Brent reached its lowest since 2002 at $21.65 a barrel on March 30.
Crude stocks in the U.S., the biggest crude-producing country, surged by 19 million barrels last week, while refiners cut capacity use to their lowest levels since 2008 due to plummeting demand caused by efforts to curb the spread of the novel virus, the U.S. Energy Information Administration said.
Record storage levels come a month after U.S. production hit an all-time high of 13.1 million.
“It’s a record that’s no longer something to crow about, it’s something to be worried about,” said Bob Yawger, director of energy futures at Mizuho in New York. “That’s how hard and how fast things have turned around.”
The inventory report came shortly after the International Energy Agency (IEA) forecast an oil demand dive of 29 million barrels per day in April to levels not seen in 25 years and said no output cut could fully offset the near-term falls facing the market.
The Organization of the Petroleum Exporting Countries, along with Russia and other producers – a grouping known as OPEC+ – has partnered with other oil-pumping nations, such as the United States, in the record global supply pact.
Markets rallied in advance of the pact, where the OPEC+ group will cut 9.7 million barrels per day, along with a hoped-for additional 10 million bpd from other nations. However, it is unclear if the total cuts, which include purchases into strategic reserves and market-induced reductions, will approach the lofty 20 million bpd figure touted by some, including Saudi officials.
“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses,” the IEA said in its monthly report.
Officials and sources from OPEC+ states indicated the IEA, the energy watchdog for the world’s most industrialized nations, could announce purchases of oil for storage of up to several million barrels to buoy the deal.
As crude tank farms around the U.S. and globally fill, oil futures contracts suggest a heavy glut of supply will overhang markets for months. Current contracts are trading at a lower price than contracts expiring several months from now.
But as of Wednesday, no such IEA purchases had materialized. The agency, in its report, said it was “still waiting for more details on some planned production cuts and proposals to use strategic storage.”
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