Oil prices extended gains for a third session on Wednesday, rising alongside broader financial markets as the United States is expected to approve a massive aid package to stem the economic impact of the coronavirus pandemic.
Demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns to stop the spread of coronavirus. Fuel demand is expected to fall sharply worldwide in the second quarter with aviation largely at a halt and road travel severely curtailed.
U.S. weekly gasoline product supplied - a proxy for demand - dropped 859,000 barrels per day (bpd) to 8.8 million bpd last week, the biggest decline since September 2019, according to the U.S. Energy Information Administration. Overall fuel demand fell by nearly 2.1 million bpd.
Both contracts had posted strong gains of more than $1 a barrel earlier in the session.
Crude inventories rose by 1.6 million barrels in the most recent week. Inventories, which have risen for nine straight weeks, are expected to keep growing as fuel demand declines and refineries pare back activity. nL1N2BI12C]
The U.S. energy sector is slashing capital spending and jobs as business activity plunged and the outlook has turned "extremely pessimistic" amid the coronavirus pandemic, a survey by the Dallas Federal Reserve Bank of oil and gas companies showed on Wednesday.
"All indexes pointed to worsening conditions among oilfield services firms," the Fed said in its report, noting that the business activity index plunged from -4.2 in the fourth quarter to -50.9 in the first, the lowest reading in the survey's four-year history.
U.S. senators and Trump administration officials have reached an agreement on a $2 trillion stimulus bill that congress was expected to pass on Wednesday.
Oil prices have fallen by more than 45% this month after OPEC+, comprising the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, failed to agree on extending output cuts.
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.
The chief executive of the world's biggest oil trader, Vitol Group, estimates a demand loss of 15 to 20 million barrels per day (bpd) over the next few weeks.
Vitol said refineries have so far cut about 7 million bpd, a figure the company expects to rise further as storage fills up.
India, the world's second most populous country and the third-largest oil consumer, has entered a 21-day lockdown.