WTI Crude prices tumbled early on Wednesday to below $20 a barrel, after the International Energy Agency warned of a record oil demand slump this year, adding additional bearish tilt to the market which is already digesting huge U.S. inventory builds and too-little-too-late OPEC++ actions to support prices.
At 8:55 a.m. EDT on Wednesday, WTI Crude was trading down 1.59 percent at $19.77 and Brent Crude was tumbling to below $30 a barrel—down by 3.72 percent on the day to $28.60.
Following the Easter holiday weekend, oil prices were volatile on Monday as the market seemed to think that Sunday’s OPEC+ decision to cut 9.7 million bpd in May and June would not go far to prevent a huge global inventory build amid crashing oil demand in the COVID-19 pandemic.
On Tuesday, oil prices were pressured again, by a report from the International Monetary Fund (IMF) saying that the global economy will likely contract by 3 percent in 2020, due to the coronavirus outbreak and the following “Great Lockdown” which will plunge many economies into recession.
Later on Tuesday came the report of the American Petroleum Institute (API), which estimated another large crude oil inventory build of 13.143 million barrels for the week ending April 10 as demand destruction stemming from the coronavirus wears on.
On Wednesday, oil prices crumbled after the IEA issued its monthly report, saying that it expects global oil demand to plunge by a record 9.3 million barrels per day (bpd) in 2020 compared to last year.
Even if travel restrictions are lifted in the second half of this year, demand for the whole 2020 would drop by a record level of 9.3 million bpd, “erasing almost a decade of growth,” said the agency, also warning that the historic OPEC++ deal may not be able to prevent global storage from overflowing within weeks.
Three days after the global oil deal—described as historic by OPEC+ and the U.S.—the market has already forgotten the calculations of voluntary and forced cuts and has turned its attention again to the massive demand loss in the pandemic.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- U.S. Oil Drilling Grinds To A Halt At Key Shale Hotspots
- Will Trump Really Slap Tariffs On Saudi Oil?
- Coronavirus And The Coming Financial Revolution
It proves one fact staring us in the face, namely no matter how big production cuts are, they will hardly have a positive impact on oil prices as long as the coronavirus outbreak is still raging.
What oil-consuming and oil-producing countries of the world should be doing is to implement the most stringent measures to control the outbreak and shorten the duration of the global lockdown so as to enable the economies of the world to resume their normal economic activities rather than wasting time negotiating oil production cut deals which are futile in the current circumstances.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London