By Roslan Khasawneh
SINGAPORE (Reuters) – Oil prices eased on Thursday after three days of profit. The prospect of a rapid decline in demand due to travel bans and coronavirus bans offsets hopes that a $ 2 trillion emergency incentive will support economic activity.
Brent crude futures fell 19 cents or 0.7% to $ 27.20 a barrel to 0441 GMT. West Texas Intermediate (WTI) crude oil futures fell 37 cents, or 1.5%, to $ 24.12 a barrel. Both contracts fell by around 60% this year.
“Oil markets have been dragged by the US economic downturn, but most of the activities remain rudderless and flooded with an ocean of oil,” said Stephen Innes, market strategist at AxiTrader.
The U.S. Senate overwhelmingly supported a $ 2 trillion bill to help unemployed and industries affected by the coronavirus epidemic on Wednesday.
However, as demand quickly shrinks and production increases, the prospects for oil remain poor.
IHS Markit estimates that global oil demand will drop by more than 14 million barrels per day (bpd) in the second quarter, leading to unprecedented inventory builds.
“Expect fundamental pressure to focus on March and April, an eight-week flash period in which stocks are currently accumulating north of 1 billion barrels,” said Roger Diwan, vice president of financial services at IHS Markit.
At the same time, the collapse of a supply cut package between the organization of oil-exporting countries and other Russian-led producers known as OPEC + will boost oil supplies, with Saudi Arabia planning to ship more than 10 million bpd as of May.
Oil stocks are already increasing and tanks around the world are filling up quickly despite a 50-100% increase in leasing costs as oil companies and dealers endeavor to park unwanted crude and refined products.
“At this turning point, producer surplus becomes a massive logistical problem when considering oil storage, which then opens the trap door so oil prices can drop below cash costs,” said Innes.
The Vienna-based company JBC Energy assumes that global oil demand will drop by more than 15.3 million bpd in the second quarter, which should push reference prices down to around USD 10 per barrel, at least temporarily.
“OPEC + as an organization is of fairly limited relevance in this context as it is unlikely to be willing or able to stem the current demand shock,” said Johannes Benigni, chairman of JBC Energy, on Wednesday in a note.
US crude oil reserves rose 1.6 million barrels last week, the US energy information agency said on Wednesday, marking the ninth consecutive week of growth.
The delivered products, a replacement for the demand in the USA, fell by almost 10% to 19.4 million bpd according to the EIA data.
(Reporting by Roslan Khasawneh in SINGAPORE and Sonali Paul in MELBOURNE; editing by Richard Pullin)