Oil prices shed more than 10% on Tuesday, with investors apparently unconvinced that record supply cuts could soon balance markets pummeled by the coronavirus pandemic, though a predicted plunge in U.S. shale output provided some support.
U.S. West Texas Intermediate crude fell 10.26% to settle at $20.11 per barrel, having dropped 1.5% in the previous session. Brent futures fell $2.14, or 6.7%, to $29.60 per barrel after settling up 0.8% on Monday.
Global oil producers worldwide are expected to cut overall output by roughly 19.5 million barrels per day, or nearly 20% of world supply.
However, those commitments - which include voluntary cuts that will happen gradually in places like the United States - will not be enough to reduce the growing worldwide supply glut. Oil prices remain more than 50% down this year.
"With demand destruction forecasts ranging from 15 million to 22 million bpd in April 2020 and these measures not even coming into place until May, we are likely to see a substantial overhang in the short-term," said Nitesh Shah, director of research at New York-based WisdomTree Investments.
The bulk of the mandated reductions come from the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+. That group agreed this weekend to cut output by 9.7 million bpd in May and June. The rest from the United States, Canada and others, will come as a result of weak pricing and happen over time.
As a result, physical markets where crude is traded, such as in Houston or London, suggest prices will not recover for a while as storage fills.
Enterprise Products Partners said it was making an existing line available to ship more oil to the Cushing, Oklahoma storage hub, which is rapidly filling due to lack of fuel demand.
U.S. production is starting to drop, the Energy Department said on Monday, with estimated shale output expected to fall by 200,000 bpd in April, a record.
Rystad Energy's head of oil markets, Bjornar Tonhaugen, said that implementation of the international deal would be a logistical challenge that would take weeks at least.
"Reducing upstream supply is not just turning off the tap or pushing a button. We would be surprised to see overall OPEC+ compliance at 50% through May," he said.
Inventories, where available, are expected to fill up fast even as some countries among the G20 group of nations agreed to buy oil for their national reserves.
"The markets will continue to grapple with some huge inventory builds that will be most evident within the highly transparent U.S. market," said Jim Ritterbusch, president of Ritterbusch and Associates, in a note.
U.S. crude stockpiles were forecast to have risen last week for a 12th straight week, according to analysts polled ahead of weekly data due late Tuesday and Wednesday. In the previous week, they rose a record 15.2 million barrels.
There are signs that the coronavirus outbreak may have peaked in some areas of the world.
In China, where the virus outbreak started and is now largely under control, demand appears to be returning, with data showing crude oil imports rose 12% in March from a year earlier.