LONDON (Reuters) – Oil prices were broadly stable on Thursday after sharp losses in the previous session, with investors hoping that a big build-up in U.S. inventories may mean producers have little option but to deepen output cuts as the coronavirus pandemic ravages demand.
FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo
With official data showing U.S. inventories surging the most on record, U.S. West Texas Intermediate (WTI) fell on Wednesday to its lowest since February 2002, with Brent losing more than 6%.
Brent crude LCOc1 was down 19 cents, or 0.7%, at $27.50 a barrel by 0754 GMT. WTI was up 7 cents, or 0.4%, at $19.94.
Brent was heading for its third straight session of losses, while WTI eeked out its first tentative gains after falling for four sessions.
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 to the lowest in 25 years, and to just below 30% of pre-coronavirus global demand levels.
The projected demand loss is far more than recent output cuts agreed to by producing nations.
The Organization of the Petroleum Exporting Countries and allied producers including Russia, a grouping known as OPEC+, have agreed to reduce output by 9.7 million bpd.
Hoped-for cuts of another 10 million bpd from other countries, including the U.S., could lower production by 20 million bpd, although some analysts have questioned that number.
“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,” ING bank said in a note on Thursday.
Some countries have also committed to increasing purchases of oil for their strategic stockpiles, but there are limits to how much oil can be bought and the extent of global coordination.
Highlighting current oversupply concerns, Brent’s six-month contango LCOc1-LCOc7, a market structure where prompt prices are lower than those for later dates, kept hovering around $9.8 a barrel, near levels seen before talk of a global output cut.
Additional reporting by Roslan Khasawneh in Singapore and Aaron Sheldrick in Tokyo; Editing by Mike Harrison