By Peter Nurse
Investing.com - Oil markets pared losses Wednesday, but the overall tone remained weak as the hit to global demand was laid bare by the latest report from the International Energy Agency.
AT 9:50 AM ET (1350 GMT), U.S. crude futures traded 0.7% higher at $20.23 a barrel, having traded as low as $19.21, a new 2020 low, while the international benchmark Brent contract fell 4.6% to $28.25.
Global oil demand is likely to drop by a record 9.3 million barrels per day in 2020 as the Covid-19 pandemic brings mobility - and consequently fuel demand - almost to a halt, the International Energy Agency said Wednesday.
Demand in April is estimated to be 29 million barrels a day lower than a year ago, down to a level last seen in 1995, the IEA said in its monthly Oil Market Report, while demand in the second quarter of this year is expected to be 23.1 million barrels a day below year-ago levels.
This puts into context the 9.7 million-barrel cut in daily production agreed at an emergency meeting of the Organization of Petroleum Exporting Countries and its allies, including Russia, on Sunday.
“The market is coming to the realization that OPEC+ cuts, while significant, are still not going to do the job of balancing the market over this quarter,” said ING, in a research note. “Meanwhile, cuts from outside OPEC+ are likely to be market-driven rather than mandated, so these declines will be gradual rather than immediate.”
Most of the cuts from outside the OPEC+ are expected to come from the U.S. and Canada, but this idea has run into resistance in Texas where some drillers in the largest U.S. oil producing state balked at making more reductions than they deemed necessary.
“Generally smaller producers were supportive of cuts, whilst larger producers were keener to allow for market-driven declines, something we are already starting to see,” ING added.
Attention will now turn to the latest data from the Energy Information Administration later Wednesday, with U.S. stockpiles expected to rise by 11.6 million barrels last week, after having risen 30.6 million barrels over the past three weeks.