By James Thornhill and Alex Longley
Futures fell as much as 4.5% in New York to the lowest since 2002. Oil demand will drop by over 9 million barrels a day this year, wiping out a decade of consumption growth, the IEA said, exhausting storage by mid-year. While Saudi Arabia and other Middle East producers have pledged to cut supply starting next month, they continue to flood the market in April.
Stockpiles are expected to rise further in the U.S. and European inventories increased the most in more than a year last week. This is weakening key physical market gauges. New York oil futures moved deeper into contango, signaling an expanding oversupply, while swap prices indicate North Sea cargoes are at their biggest discounts to Brent futures in more than a decade.
Oil has lost about two-thirds of its value this year as countries extend their coronavirus lockdowns, death tolls mount around the world, and unemployment explodes in America. The International Monetary Fund estimated the global economy will shrink 3% this year, a signal that energy demand may remain weak, while the IEA is warning that the worst may be yet to come.
“We may see further downward pressure on prices in coming days and weeks,” IEA Executive Director Fatih Birol said.
The IEA said consumption in April will fall by almost a third to the lowest level since 1995, and make this year the worst in the history of the oil market. Despite OPEC+’s efforts, global inventories will accumulate by 12 million barrels a day in the first half of the year and “overwhelm the logistics of the oil industry” in the coming weeks, it warned.
The massive OPEC+ deal to cut production starts next month. Until then the battle for market share persists with Abu Dhabi cutting its crude pricing for Asia. It follows a similar move by Saudi Arabia earlier in the week.
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