Prices of US crude oil have fallen to an 18-year low with Brent losing over 6% yesterday. The news came as the country recorded the largest ever weekly inventory build since records began, while worldwide demand is set to fall to 25-year lows as a result of the coronavirus pandemic.
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The sobering figures have put a dampener on the more upbeat sentiment that followed the weekend agreement between global oil producers that there would be a phased-in output cut of hitherto unseen proportions, and makes clear that reducing supply was not enough to prevent storage space filling up and leaving large numbers of barrels stranded.
“We have crude oil backing up in the system in epic fashion,” said John Kilduff, a partner at New York's Again Capital following the 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 by 6.45%, or $1.91, settling at $27.69 a barrel. West Texas Intermediate (WTI) crude lost 24 cents, or just under 1.2%, resting at $19.87 a barrel - logging its lowest close in 18 years.
For WTI to move lower, the US would need to get close to storage capacity, according to Gene McMillan, VP of market research at Connecticut's Tradition Energy.
“The market is showing at near two-decade lows that we need to have more evidence that we’re going to have a huge glut on our hands that will take some time for it to be whittled away before people get aggressively short below $20,” he said.
Last week, the US Energy Information Administration said its stocks of crude oil had leapt by 19 million barrels as refiners cut capacity use to the lowest levels since 2008 due to demand falling off a cliff edge following efforts to prevent the Covid-19 spread.
The inventory report came shortly after the International Energy Agency (IEA) forecast oil demand would dive 29 million barrels a day in April to levels unseen in 25 years and said no output cut could fully offset the near-term falls facing the market.
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