NEW YORK – U.S. crude prices rose slightly on Wednesday, bolstered by progress on a massive pending U.S. economic stimulus package, but government data shows the coronavirus pandemic started to hurt U.S. fuel demand last week.
Demand for oil products, especially jet fuel, is falling dramatically as governments globally announce nationwide lockdowns to slow the spread of coronavirus.
Fuel demand is expected to fall sharply worldwide in the second quarter with aviation largely at a halt and road travel severely curtailed. Most recently, India, the world’s second most populous country and the third-largest oil consumer, entered a 21-day lockdown.
U.S. weekly gasoline product supplied – a proxy for demand – dropped 859,000 barrels per day (bpd) to 8.8 million bpd last week, the biggest one-week decline since September 2019, according to the U.S. Energy Information Administration. Overall fuel demand fell by nearly 2.1 million bpd for the week.
West Texas Intermediate (WTI) crude CLc1 futures rose 55 cents, or 2.3%, to $24.56 a barrel, a 2.3% gain. Brent crude LCOc1 rose 40 cents to $27.55 a barrel, a 1.5% gain.
U.S. senators and Trump administration officials have reached an agreement on a $2 trillion stimulus bill that Congress was expected to pass on Wednesday, helping to boost markets.
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.
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The chief executive of the world’s biggest oil trader, Vitol Group, estimates a demand loss of 15 million to 20 million barrels per day (bpd) over the next few weeks.
The U.S. energy sector is slashing capital spending and jobs, with capital expenditures at most shale companies expected to drop by at least 30%.
The outlook has turned “extremely pessimistic” amid the coronavirus pandemic, a survey by the Dallas Federal Reserve Bank of oil and gas companies showed on Wednesday. The Dallas Fed said its business activity index plunged from -4.2 in the fourth quarter to -50.9 in the first, the lowest reading in the survey’s four-year history.
Crude inventories rose by 1.6 million barrels in the most recent week, the EIA said. Inventories, which have risen for nine straight weeks, are expected to keep growing as fuel demand declines and refineries pare back activity.
“We are entering into the single worst reset in energy prices in my lifetime,” said one respondent.
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.
