WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled lower Thursday, with West Texas Intermediate falling another 7% after the U.S. Department of Energy withdrew plans to purchase crude oil for the Strategic Petroleum Reserve, citing the lack of funding from Congress, unnerving producers as they brace for a rapidly building supply glut as the COVID-19 pandemic shrinks demand.
International Energy Agency Chief Dr. Fatih Birol said during a conference call Thursday global oil demand could shrink as much as 20 million barrels per day (bpd) or 20% this year as the spreading pandemic shut-ins nearly one-fifth of the global economy. The Paris-based agency projects a demand drop to accelerate in the second quarter.
Coronavirus-led demand destruction began to show up in the latest oil inventory data, capturing statistics from forced closures of government agencies and businesses that picked up pace nationwide last week. Data showed motor gasoline demand in the United States sank 859,000 bpd or 9% during the week ended March 20 and distillate fuels supplied to market dropped 218,000 bpd or 5.4%. Overall, total domestic fuel demand fell by nearly 2.1 million bpd in the reviewed period, with fuel consumption to deteriorate further in the coming weeks.
Profit margins for refineries domestically and around the world are under extreme pressure from the plunge in global oil demand that has sunk market prices, forcing refineries to cut rates and spending.
Expected support for U.S. oil producers from the federal government evaporated after the U.S. Department of Energy said it withdrew plans to purchase crude for the Strategic Petroleum Reserve due to a lack of funding from Congress.
"Given the current uncertainty related to adequate Congressional Appropriations for crude oil purchased associated with the March 19, 2020 solicitation, the department is withdrawing the solicitation. Should funding become secure for the planned purchases, the department will reissue the solicitation," the paperwork read.
According to reports, funding for the purchase was not included in the $2 trillion stimulus bill passed by the Senate in response to the COVID-19 pandemic.
Earlier this month, DOE announced plans to purchase 30 million bbl of crude oil from small to midsize producers in the United States that would go to the SPR and support operators "facing potentially catastrophic losses from the impacts of COVID-19 and the intentional disruption to world oil markets by foreign actors."
Amid growing signs of a flagging economy, U.S. President Donald Trump had reportedly planned to persuade Saudi Arabia to back away from its price war with Russia that is widely seen further hurting global markets. Saudi Arabia, the chair of the G-20 meeting, is reportedly open to dialogue on oil policy involving several countries, producers and consumers that are being affected by the latest slump in oil prices.
"Collaboration within the G-20 forum could widen the scope of discussions beyond just Saudi-Russian dialogue, bringing in larger group of countries, including Brazil, China, France, Germany, Mexico and the United Kingdom," said oil historian Daniel Yergin.
At settlement, NYMEX May WTI futures dropped $1.89 to $22.60 barrel (bbl) and ICE May Brent fell to $1.05 to $26.34 bbl, snapping two back-to-back sessions of gains. NYMEX April ULSD futures declined 4.75 cents to close at $1.0503 gallon and front-month NYMEX RBOB contract edge lower to $0.5438 gallon.
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