Oil Prices Fall As Fuel Demand Sinks
Oil prices fell on Wednesday despite a massive pending United States economic stimulus package as the coronavirus pandemic sharply dented US fuel demand in the latest week, with traders bracing for further declines.
Demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns to stop 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, according to Reuters.
Brent crude was down 17 cents, or 0.6 per cent, to $26.98 a barrel, at 09:10 AM GMT. US crude futures fell 21 cents, or 0.9 per cent, to $23.80 a barrel.
Both contracts had posted strong gains of more than $1 a barrel earlier in the session.
Crude inventories rose by 1.6 million barrels in the most recent week. Inventories, which have risen for nine straight weeks, are expected to keep growing as fuel demand declines and refineries pare back activity.
The US energy sector is slashing capital spending and jobs as business activity plunged and 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.
“All indexes pointed to worsening conditions among oilfield services firms,” the Fed said in its report, noting that the 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.
US senators and Trump administration officials have reached an agreement on a $2tn stimulus bill that congress was expected to pass on Wednesday.
Oil prices have fallen by more than 45 per cent this month after OPEC+, comprising the Organisation of the Petroleum Exporting Countries and other producers, including Russia, failed to agree on extending output cuts.
US weekly gasoline product supplied – a proxy for demand – dropped 859,000 barrels per day to 8.8 million bpd last week, the biggest decline since September 2019, according to the US Energy Information Administration. Overall fuel demand fell by nearly 2.1 million bpd.