Oil edges higher after hitting 18-year lows but to deepen output cuts as the coronavirus pandemic ravages demand

With official data showing U.S. inventories surging the most on record, WTI fell on Wednesday to its lowest since February 2002, with Brent slumping more than 6%.

Brent crude LCOc1 was up 25 cents, or 0.9%, at $27.94 a barrel by 0643 GMT. U.S. West Texas Intermediate (WTI) was up 14 cents, or 0.7%, at $20.01.

Concerns about crumbling demand kept a lid on gains, with both contracts trading earlier in the session as much as 2.5% higher than on Wednesday.

Energy Information Administration data also showed large U.S. refined fuels stock builds despite refiners operating at 69% of capacity nationwide, the lowest since September 2008.

“The massive storage build, as counterintuitive as it sounds, did provide some price support as the build foreshadows that more wellhead closures are just around the corner, which effectively trims U.S. supply,” said Stephen Innes, chief global markets strategist at AxiCorp.

The figures followed a report from the International Energy Agency (IEA) that forecast oil demand would fall by 29 million barrels per day (bpd) in April from a year earlier, to the lowest in 25 years, and to just below 30% of pre-coronavirus global demand levels. [IEA/M]

The projected demand loss is far more than the output cuts agreed to by producing nations. The Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia, a grouping known as OPEC+, have agreed to reduce output by 9.7 million bpd, while hoped-for cuts of another 10 million bpd from other countries, including the United States, could lower production by 20 million bpd.

Last week, the EIA said U.S. production is expected to slump by 470,000 bpd.

“Given the scale of demand destruction this quarter, OPEC+ cuts will fall short of bringing the market to balance anytime soon, and this is reflected in the price weakness seen since the OPEC+ deal,” said ING bank in a note on Thursday.

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