Oil prices drop as poor demand outweighs US stimulus

London — Oil prices slipped into negative territory on Wednesday as faltering fuel demand from the spread of the coronavirus outweighed a huge, pending US economic stimulus package.

Brent crude was down 45c, or 1.66%, at $26.70 a barrel at 10.29am GMT after earlier rising to a high of $28.29. US crude was down 10c, or 0.42%, at $23.91 after a high of $25.24 a barrel.

US senators and Trump administration officials have reached an agreement on the $2-trillion stimulus bill which is expected to be passed through Congress later on Wednesday.

Still, demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns, putting a lid on oil price gains.

“Though oil futures are getting 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 Bjørnar 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 amid new measures to curb the spread of the Covid-19.

India, the world’s second most populous country and the third largest oil consumer, has entered a 21-day government enforced lockdown.

On Wednesday, ING slashed its Brent crude price forecast for the second quarter to $20 a barrel from $33 due to the coronavirus pandemic and an expected supply surge from Saudi Arabia and Russia from April.

Oil prices have fallen by more than 45% this month after oil cartel Opec and other producers, including Russia (Opec+), failed to agree on extending output cuts beyond March 31.

In the US, crude inventories fell by 1.2-million barrels in the week to March 20 to 451.4-million barrels, compared with analysts’ expectations for a build of 2.8-million barrels, data from the American Petroleum Institute (API) showed on Tuesday.

Petrol and distillate stocks also fell last week, API said.

Official data from the Energy Information Administration (EIA) is expected on Wednesday.

Reuters