WTI, ULSD and Crude Skid Lower

WASHINGTON (DTN) -- West Texas Intermediate and ULSD futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended losses into the early hours Wednesday after the International Energy Agency forecasted a record 29 million barrels per day (bpd) dive in global oil demand this month triggered by containment measures to contain the pandemic, while warning no feasible supply agreement could offset near-term destruction to fuel demand.

Paris-based agency said Wednesday that even after travel restrictions ease in the summer months, global oil demand would still fall by a record 9.3 million bpd this year, erasing a decade of growth.

"When we look back at 2020, we may see it was the worst year in the history of oil markets and the second quarter may have been the worst of the lot," said Fatih Birol, the IEA's executive director. "In that quarter, April may have been the worst month. It may go down as 'Black April' in the history of the oil industry."

IEA projects the recovery in demand will slowly gain traction late in the second quarter, early third quarter, although demand would still be 15 million bpd below a year ago in June.

Earlier this week, International Monetary Fund warned global economic growth this year would suffer the worst financial crisis since the Great Depression, with no recovery expected until the second half 2021.

Global supply-cutting agreement reached by more than 20 countries would cover 12 million bpd of lost oil drop, according to IEA estimates, while sizable output declines from the countries outside Organization of the Petroleum Exporting Countries would not be realized until the fourth quarter. Total non-OPEC output fall could reach 5.2 million bpd in the fourth quarter, and for the year as a whole output may be around 2.3 million bpd lower than last year.

Concomitantly, the agency said global oil inventories would hit "operational capacity" limit by the middle of the year, calling on stocks to increase by 11.9 million bpd in the second quarter.

The agency echoed the somber sentiment from several top oil executives at the hearing before the Texas Railroad Commission on Tuesday, with some calling on the regulatory body to institute mandatory cuts of 20% on the state's oil producers.

CEO of Pioneer Resources Scott Sheffield believes that market-driven cuts would not come fast enough to prevent an overflow at storage facilities in the coming weeks.

"The industry will be wiped out if cuts are not introduced. We will see oil at $3 to $10 per barrel (bbl) in the second half of the year," Sheffield projected.

The proposal for prorations 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.

A group of Oklahoma oil producers on Monday filed a similar request with their state also asking for a hearing to consider production curbs.

Separately, markets await the release of official supply data on last week's change in U.S. crude and product stocks from the Energy Information Administration due out at 10:30 a.m. ET.

The American Petroleum Institute reported Tuesday U.S. commercial crude oil supplies surged more than 10 million bbl for a third consecutive week while detailing builds in gasoline and distillate inventories in the week ended April 10. Data showed commercial crude oil supplies spiked 13.143 million bbl in the week profiled, rising more than 35.5 million bbl over the last three weeks. At the Cushing, Oklahoma-hub crude stocks surged 5.361 million bbl last week. Gasoline supply rose 2.226 million bbl in the week ended April 10 and distillate stockpiles jumped 5.64 million bbl.

In early trading, NYMEX May WTI futures dropped back $0.41 to trade near $19.69 bbl and ICE June Brent retreated $1.14 to $28.47 bbl. NYMEX May RBOB advanced 1.62 cents to near $0.7405 gallon and May ULSD May futures moved down 2.55 cents to $0.9195 gallon

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)

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