LONDON (Reuters) – Oil prices fell on Wednesday as faltering fuel demand because of the coronavirus pandemic outweighed a massive pending U.S. economic stimulus package.
FILE PHOTO: Pump jacks operate at sunset in Midland, Texas, U.S., February 11, 2019. REUTERS/Nick Oxford/File Photo
Brent crude LCOc1 was down 84 cents, or 3.1%, at $26.31 a barrel at 1154 GMT after touching a low of $25.68.
U.S. crude CLc1 was down 29 cents, or 1.2%, at $23.72 after a low of $23.15.
Both contracts had posted strong gains of more than $1 a barrel earlier in the session.
U.S. senators and Trump administration officials have reached an agreement on a $2 trillion stimulus bill that is expected to be passed through the Congress later on Wednesday.
However, demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns, putting a lid on oil prices.
Although oil futures received a “sentiment-led boost this morning, the challenge for the physical oil market is a looming and growing oversupply which will cause a ‘nowhere to hide’ situation very soon”, said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
Refineries globally are responding to the fall in demand by reducing output, with plants in India the latest to cut crude processing, while ports in the country could face delays to crude discharging after new measures to curb the spread of the virus.
The chief executive of the world’s biggest oil trader, Vitol Group, estimates a demand loss of 15 to 20 million barrels per day (bpd) over the next few weeks.
Vitol says refineries have so far cut about 7 million bpd, a figure the company expects to rise further as storage fills up.
India, the world’s second most populous country and the third-largest oil consumer, has entered a 21-day lockdown.
ING on Wednesday slashed its Brent crude price forecast for the second quarter to $20 a barrel, from $33, due to the coronavirus and an expected supply surge from Saudi Arabia and Russia from April.
Oil prices have fallen by more than 45% this month after OPEC+, comprising the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, failed to agree on extending output cuts beyond March 31.
In the United States, crude inventories fell by 1.2 million barrels to 451.4 million barrels in the week to March 20, compared with analyst expectations for a build of 2.8 million barrels, data from the American Petroleum Institute showed on Tuesday.
Gasoline and distillate stocks also fell last week, the API said.
Official data from the Energy Information Administration is expected on Wednesday.
Additional reporting by Florence Tan in Singapore; editing by Jason Neely and David Goodman