WASHINGTON (DTN) -- West Texas Intermediate and ULSD futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange turned sharply lower Tuesday, as market concerns over a building oil supply glut amid lost demand mount. In addition, the three-person Texas Railroad Commission heard arguments Tuesday on whether the commission should prorate the state's 5 million barrels per day (bpd) in oil production now threatening to overrun storage capacity.
Tuesday afternoon, oil traders also positioned ahead of the release of inventory data on U.S. crude and petroleum stocks for the week ended April 10; the American Petroleum Institute was set to release its weekly report at 4:30 p.m. EDT, followed by official data from U.S. Energy Information Administration due out 10:30 a.m. EDT Wednesday.
Markets expect another week of large inventory builds in crude and gasoline stocks and a modest gain in distillate supply. Crude oil stocks likely increased 11 million barrels (bbl) last week and gasoline supply is seen to have built by 4 million bbl, with distillate stocks estimated to have increased 2 million bbl.
At settlement, NYMEX May WTI futures dropped back $2.30 to settle at $20.11 bbl, having traded at $19.95 during the session, and ICE June Brent retreated $2.14 for a $29.60 bbl settlement. NYMEX May RBOB advanced 1.67 cents to close at $0.72 gallon and May ULSD May futures moved down 5.04 cents to $0.9442 gallon.
WTI and Brent have given up gains made since the consummation of a global deal to reduce supplies by 9.7 million bpd for the next two months shared among more than 20 producers worldwide. Traders remain skeptical the deal would correct growing supply-demand imbalances in the market as oil storage worldwide fills up quickly on the back of slumping demand for gasoline and jet fuel. This sentiment was echoed Tuesday when a number of top oil executives presented arguments before the Texas Railroad Commission for and against prorated curbs on the state's oil producers.
The proposal for prorating was submitted by executives from shale producers Pioneer Natural Resources Co. and Parsley Energy Inc., which called for a 20% reduction in Texas oil production stating May 1. They estimate the quota would remove approximately 1 million bpd from the global oil market.
"Economically driven cuts won't happen fast enough not to overflow the storage facilities in the coming weeks. The industry will be wiped out if cuts are not introduced," argued Pioneer Chief Executive Scott Sheffield. He predicted $3 to $10 bbl oil the second half of the year. "This is probably going to be worse than '86," Sheffield said. "Demand is not going to come roaring back."
If the commission determines under law it must restrict oil output, it would be the first time in nearly 50 years Texas regulators set production quotas on state oil producers.
A group of Oklahoma oil producers on Monday filed a similar request with their state, also asking for a hearing to consider production curbs.
Further feeding into the bearish sentiment, the International Monetary Fund on Tuesday slashed its global growth forecast for 2020 to a negative 3%, marking it the worst financial crisis since the Great Depression.
The Washington-based agency expects the "Great Lockdown 2020" recession would surpass the economic contraction seen during the global financial crisis a decade ago, while calling for a partial recovery in 2021. IMF warns however, the coronavirus pandemic, once contained, could reemerge and that would dent prospects for economic recovery.
"This crisis is like no other. Like in a war or political crisis, there is continued severe uncertainty about the duration and intensity of the shock," said IMF Chief Economist Gita Gopinath.
In the United States, the agency forecasts economic growth is likely to contract by 5.9% this year compared with 2% expansion seen in its last global economic outlook in January.
Liubov Georges can be reached at email@example.com
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