The coronavirus pandemic has strangled the world's economies, silencing factories and airlines on the ground, reducing the need for fuel.
Oil prices fell on profit taking Thursday after three days of gains, helped by the Federal Reserve's sweeping stimulus measures and optimism surrounding a US $2 trillion emergency stimulus plan. Fuel demand is expected to fall sharply worldwide in the second quarter with aviation largely at a halt and road travel severely curtailed.
The U.S.' crude oil inventories increased less than market expectations last week, according to data released by the Energy Information Administration (EIA) on Wednesday. Overall fuel demand fell by almost 2.1 million bpd.
Analysts at Goldman say Brent crude, the worldwide benchmark, will remain around $20 in the second quarter - down from $29 a barrel now - but the price of the US benchmark should drop "well below $20 a barrel".
Brent crude futures fell $1.04, or 3.75%, to $26.35 a barrel.
Crude inventories rose by 1.6 million barrels in the most recent week.
Both contracts had posted strong gains of more than $1 a barrel earlier in the session.
A combination of faltering demand resulting from the coronavirus outbreak and a price war that has seen a rise in production had already raised fears that the industry was entering its worst crisis in hundred years. $2 trillion emergency stimulus will bolster economic activity.
Although oil futures received a "sentiment-led boost this morning, the challenge for the physical oil market is a looming and growing oversupply which will cause a "nowhere to hide" situation very soon", said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
At the same time, the collapse of a supply-cut pact between the Organization of the Petroleum Exporting Countries and other producers led by Russian Federation, known as OPEC+, is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May. Since then, oil storage levels across the world's storage facilities have climbed to about three-quarters full on average.
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