U.S. oil prices slumped to a fresh 18-year low Wednesday after the International Energy Agency forecast the steepest decline in global demand on record as the coronavirus pandemic shutters the world economy.
The Paris-based thinktank said that OPEC's recent agreement with Russia, as well as several other G20 oil producers, won't rebalance a market awash with crude now that demand is likely to fall by 9.5 million barrels from last year - with a staggering April decline of around 23 million barrels a day. The IEA's annual forecast decline is the steepest decline on record and would take global crude appetite for levels last seen in 1995.
"The measures announced by OPEC+ and the G20 countries won’t rebalance the market immediately," the IEA said. "But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis, whose consequences for the oil market remain very uncertain in the short term."
"There is no feasible agreement that could cut supply by enough to offset such near-term demand losses," the agency added. "However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year."
WTI crude futures for May delivery, the U.S. pricing benchmark, fell 45 cents from their Tuesday closing price in New York to change hands at $19.66 per barrel, after hitting $19.20 earlier in the session, the lowest level in at least 18 years and a move that marks a 68% decline from the start of the year.
Brent crude futures contracts for June delivery, the reference for around 60% of global crude purchases, slumped $1.17 to trade at $28.43 per barrel.
ExxonMobil (XOM) - Get Exxon Mobil Corporation Report shares were marked 3.06% lower in pre-market trading to indicate an opening bell price of $41.13 each, while domestic rival Chevron Corp. (CVX) - Get Chevron Corporation Report was seen 3.17% lower at $81.93
Earlier this week, after OPEC leaders, as well as non-member allies, reached a conclusive agreement that will cut production by around 10 million barrels a day.
OPEC member states, as well as Russia, will cut their collective production by 9.7 million barrels per day, with the U.S., Canada and Brazil contributing 3.7 million barrels per day.
Other G20 states will reduce their output -- largely because of a slump in demand triggered by the coronavirus pandemic -- by 1.3 million barrels.
Market reaction to the cuts, however historic, was mitigated by the fact that the reference point for the reductions will be April, a month during which Saudi Arabia had pledged to pump around 12.3 million barrels of crude was it ramped-up its price war with Russia.
That effectively means the first phase of the cuts -- from May until June -- will amount to around 7 million barrels per day for OPEC+ and slide to 5 million barrels per day over the second half of the year.