Oil Falls as Sinking Demand Outweighs Stimulus Hopes

Oil extends gains as optimism over U.S. stimulus lifts global markets

Demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns to stop the spread of coronavirus.

Oil prices fell on Wednesday despite a massive pending US economic stimulus package as the coronavirus pandemic sharply dented USA fuel demand in the latest week, with traders bracing for further declines.

Meanwhile, data released by the Energy Information Administration (EIA) on Wednesday showed crude oil inventories in the USA rose by 1.6 million barrels for the week ended March 20, against expectations for a 2.8 million barrels increase. Overall fuel demand fell by almost 2.1 million bpd. Brent crude was down 1.7 per cent at $26.70 per barrel on Wednesday as faltering fuel demand outweighed a massive pending United States economic stimulus package.

Brent crude futures fell $1.04, or 3.75%, to $26.35 a barrel.

Both contracts had posted strong gains of more than $1 a barrel earlier in the session.

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The losses were said to have been incurred partly due to Fatih Birol, executive director of the International Energy Agency, warning that demand could drop by as much as 20 million barrels per day (bpd), and by the White House deciding to rescind a crude buying offer after failing to win funding from Congress.

But with demand disappearing and output rising, the outlook is bleak. $2 trillion emergency stimulus will bolster economic activity.

A global energy firm, Wood Mackenzie, noted recently that the coronavirus outbreak had derailed the alliance between the Organisation of Petroleum Exporting Countries and its partners, thrown the oil market into turmoil, and sent the oil and gas sector into free-fall-all setting in motion a chain of events that led to the steepest price drop in 30 years.

"Global isolation measures are leading to an unprecedented collapse in oil demand", it said.

Vitol said refineries have so far cut about 7 million bpd, a figure the company expects to rise further as storage fills up. Since then, oil storage levels across the world's storage facilities have climbed to about three-quarters full on average.

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