Oil futures fell Wednesday, with worries about growing supply amid a price war between Saudi Arabia and Russia outweighing support from an agreement on a $2 trillion U.S. economic stimulus program.
Weekly data from the Energy Information Administration, meanwhile, revealed a smaller-than-expected weekly climb in U.S. crude inventories, but the rise also marked a ninth weekly increase in a row.
West Texas Intermediate crude for May CLK20, -1.67% fell 82 cents, or 3.4%, to $23.19 a barrel on the New York Mercantile Exchange. May Brent crude BRNK20, -1.88%, the global benchmark, was off 67 cents, or 2.5%, at $26.48 a barrel on ICE Futures Europe.
Democratic and Republican lawmakers and the Trump administration reached a deal on a $2 trillion relief package aimed to tide over U.S. citizens and businesses as the economy grinds to a near halt as a result of the global COVID-19 pandemic. Expectations for a deal had helped lift oil futures and sent stocks soaring on Tuesday.
But analysts said the global demand hit from the pandemic coupled with a flood of crude unleashed by a price war between Saudi Arabia and Russia continued to put a cap on oil futures.
Read: Dismal oil demand outlook, Saudi-Russian price war lead to ‘atomic bomb’-like environment for oil
“News of increased crude availability is coming thick and fast at the moment, with the post-OPEC+ fight for market share continuing apace against a backdrop of unprecedented demand suppression,”wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Wednesday note.
“Yesterday, a record 760,000 b/d (barrel a day) May loading schedule was announced for Russian Far Eastern light, sour ESPO,” they noted, referring to a specific crude blend. “This follows announcements from Angola promising to ramp up supply by 20% [month-over-month] in May, and Saudi Arabia’s pledge to maintain a record 12.3 million b/d going forward.”
The firm said its base case sees crude oversupplied by around 20 million barrels a day in April and May.
“The crux of the challenge for oil markets is twofold, the immense size of surplus and the collapsed timeline of prospective builds, severely limiting the runway of the price war,” said Roger Diwan, vice president, financial services, at IHS Markit, in a Wednesday note. “The next few weeks are unlikely to provide material relief to bearish momentum as markets digest and price the reality that supply will need to resolve this balance.”
On Wednesday, oil prices saw little reaction from data from the Energy Information Administration which revealed that U.S. crude supplies rose by 1.6 million barrels for the week ended March 20.
That followed eight straight weeks of increases, but was less than the average 2.5 million-barrel increase forecast by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a fall of 1.25 million barrels.
The EIA data also showed supply declines of 1.5 million barrels for gasoline and 700,000 barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 2.4 million barrels for gasoline and 1.6 million barrels for distillates.
On Nymex, April gasoline RBJ20, +15.60% tacked on 13.9% to 50.52 cents a gallon, with prices stretching gains to a second straight day after dropping Monday to the lowest settlement based on records going back to 2005 for the reformulated gasoline contract.
Read: Retail gasoline prices drop to lowest since 2016
April heating oil HOJ20, -0.11% shed 0.7% to $1.0726 a gallon. April natural gas NGJ20, +0.67% traded at $1.655 per million British thermal units, up 0.1%.
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