Oil fell below US$20 a barrel, clinging to the lowest level since 2002, amid a record collapse in U.S. fuel demand and the biggest ever weekly build in domestic crude supplies.

Futures in New York fell as much as 4.5 per cent and global benchmark Brent tumbled 8.2 per cent. American gasoline consumption dropped to the lowest level on record while crude supplies ballooned by almost 20 million barrels, according the Energy Information Administration. The government report underscores an earlier forecast by the Paris-based International Energy Administration, which warned that even OPEC+’s historic production cut can’t counter the epic demand decline caused by the coronavirus pandemic.

While Saudi Arabia and other Middle East producers have pledged to cut supply starting next month, they continue to flood the market in April. Meanwhile, U.S. oil production has declined only marginally.

“Whatever production that we are cutting back is not going to offset the demand destruction,” said Stephen Schork, president of the energy consultancy Schork Group Inc.

Oil demand will drop by over 9 million barrels a day this year, wiping out a decade of consumption growth, the IEA said, exhausting storage by mid-year. Consumption in April is expected to fall by almost a third to the lowest level since 1995, making this year the worst in the history of the oil market. Despite OPEC+’s efforts, global inventories will accumulate by 12 million barrels a day in the first half of the year and “overwhelm the logistics of the oil industry” in the coming weeks, the Paris-based agency warned.

Prices:
West Texas Intermediate fell 63 cents to US$19.48 a barrel at 11:17 a.m. in New York
Brent declined US$2.31 to US$27.29 a barrel
Dated Brent, the benchmark for two-thirds of the world’s physical supply, was assessed at US$20.66 on Tuesday, compared with US$23.73 on Thursday, according to S&P Global Platts

Stockpiles in the U.S. increased for a 12th straight week while European inventories increased the most in more than a year last week. This is weakening key physical market gauges. Swap prices indicate North Sea cargoes are at their biggest discounts to Brent futures in more than a decade.

More on the oil market

Just days after OPEC and its allies announced their big deal to rescue the global oil industry, it’s becoming brutally clear that all they’ve done is limit the worst of the damage.

Continental Resources Inc. founder Harold Hamm told Texas oil regulators he expects neighboring Oklahoma to adopt crude-production limits in a bid to bolster energy prices.

The physical oil market, where millions of barrels of real cargoes are traded each day, needed OPEC+’s historic cuts to global crude production months ago.

--With assistance from Alex Longley.