Oil falls 4 per cent towards $28 per barrel on oversupply concerns
LONDON: Oil fell 4 per cent towards $28 a barrel on Wednesday, pressured by reports of persistent oversupply and collapsing demand due to global coronavirus-related lockdowns and a lack of coordinated oil purchases for strategic storage.
The International Energy Agency (IEA) on Wednesday forecast a 29 million barrel per day (bpd) dive in April oil demand to levels not seen in 25 years and said that no output cut could fully offset the near-term falls facing the market.
Brent crude fell $1.19, or 4 per cent, to $28.41 a barrel at 0940 GMT, giving up earlier gains. US West Texas Intermediate crude slid 45 cents, or 2.2 per cent, to $19.66.
“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.”
Crude prices have tumbled this year, hitting an 18-year low of $21.65 a barrel on March 30. The drop in prices and demand has pushed global producers to agree unprecedented supply cuts.
The Organization of the Petroleum Exporting Countries (Opec), along with Russia and other producer — 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 that the IEA, the energy watchdog for the world’s most industrialised nations, could announce purchases of oil for storage of up to several million barrels to buoy the deal.
But as of Wednesday, no such purchases had materialised. 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,” said Saxo Bank analyst Ole Hansen.
The IEA report added to downward pressure caused by rising inventories. The IEA forecast a 9.3 million bpd drop in demand for 2020 despite what it called a “solid start” by producers following a record deal to curb supply in response to the coronavirus pandemic.
“By lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis,” the Paris-based IEA said.
“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.”
Organization of the Petroleum Exporting Countries (Opec) and other producers including Russia on Sunday agreed a record cut in output from May of 9.7 million bpd, or almost 10 per cent of global supply, to help support prices and curb oversupply.
Ahead of that, however, April could prove the worst month ever for the industry as production is set to increase while demand tumbles amid economic lockdowns around the world, IEA Executive Director Fatih Birol said.
“When we look back on 2020 we may well see that it was the worst year ... April may well have been the worst month - it may go down as Black April,” Birol told reporters on a call.
Oil producers “lost two very important months”, Birol added, referring to events including the failure of producers in early March to agree on cutting output. Instead, Saudi Arabia, Russia and others pledged to increase production as they looked to grab back market share.
Now, in addition to planned supply cuts, some nations are expected to boost buying for strategic reserves.
The IEA said it was “still waiting for more details on some planned production cuts and proposals to use strategic storage”, noting the United States, India, China and South Korea have either offered or are considering such purchases.
“If the transfers into strategic stocks, which might be as much as 200 million barrels, were to take place in the next three months or so, they could represent about 2 million bpd of supply withdrawn from the market,” the IEA said.
The IEA’S forecasts on such purchases were based on “our communications with the countries, what we see in the press and the countries’ public announcements”.