Oil prices fall after record U.S. crude storage build

By Laila Kearney NEW YORK (Reuters) - Oil prices sank on Wednesday after the United States reported a 19 million-barrel increase in inventories, the biggest weekly build ever, while forecasts showed global demand crumbling to its lowest levels in a quarter of a century due to the coronavirus pandemic. The grim figures undercut the weekend agreement between numerous global producers to cut output in coming months, making clear that supply reductions would not be enough to prevent storage from filling and leaving numerous 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

Reuters April 16, 2020 00:07:28 IST
Oil prices fall after record U.S. crude storage build

Oil prices fall after record US crude storage build

By Laila Kearney

NEW YORK (Reuters) - Oil prices sank on Wednesday after the United States reported a 19 million-barrel increase in inventories, the biggest weekly build ever, while forecasts showed global demand crumbling to its lowest levels in a quarter of a century due to the coronavirus pandemic.

The grim figures undercut the weekend agreement between numerous global producers to cut output in coming months, making clear that supply reductions would not be enough to prevent storage from filling and leaving numerous 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 $1.95, or 6.6%, to $27.65 a barrel by 11:54 a.m. EDT (1554 GMT). U.S. West Texas Intermediate crude slid 64 cents, or 3.2%, to $19.87, reaching an 18-year low. Brent hit its lowest since 2002 at $21.65 a barrel on March 30.

U.S. crude stocks rose by 19 million barrels last week, while refiners cut capacity use to their lowest levels since 2008 due to lost demand as a result of the coronavirus pandemic, the U.S. Energy Information Administration said.

The inventory report came shortly after the International Energy Agency (IEA) forecast an oil demand dive of 29 million barrels per day (bpd) in April to levels not seen in 25 years and said no output cut could fully offset the near-term falls facing the market.

"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. "However, the past week's achievements are a solid start."

The drop in oil prices and demand has pushed global producers to agree to unprecedented supply cuts.

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.

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."

The United States, India, China and South Korea have either offered or are considering such purchases, the IEA added.

Some analysts said they expect more downward pressure on the market without a demand recovery.

"The slow implementation of the agreement, the risk of non-compliance and no firm commitment from others to follow suit could see the market remain under pressure until the pandemic loosens its grip to let fuel demand recover," Saxo Bank analyst Ole Hansen said.

(Additional reporting by Alex Lawler Yuka Obayashi and Stephanie Kelly; Editing by Marguerita Choy and Paul Simao)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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