Oil slides as producer cuts fail to banish demand fears

Oil prices plunged again on Tuesday as investors were unconvinced that record supply cuts could soon balance markets pummeled by the coronavirus pandemic.

Brent LCOc1 futures fell 62 cents, or 2%, to $ 31.12 a barrel by 1310 GMT after settling 0.8% up on Monday. U.S. West Texas Intermediate (WTI) crude CLc1 was down 98 cents, or 4.4%, at $ 21.43 after dropping as much as 5% following a 1.5% decline in the previous session.

The Organization of the Petroleum Exporting Countries (OPEC), along with Russia and other producing countries – a grouping known as OPEC+ – agreed over Easter to cut output by 9.7 million barrels per day (bpd) in May and June, equating to about 10% of global supply before the coronavirus outbreak.

Additional output cuts by the United States, the world’s biggest producer, and other nations outside the OPEC+ group will take the estimated total reduction to about 19.5 million bpd.

“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.

Oil prices remain more than 50% down this year.

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.

Still, U.S. production is falling in tandem with a drop in prices and there are signs that the coronavirus outbreak may have peaked in some areas of the world.

In China, where the virus started and is now largely under control, demand appears to be returning, with data showing that crude oil imports rose 12 percent in March from a year earlier.

Supporting prices, U.S. shale oil output is expected to register a record monthly drop in April, the U.S. Energy Information Administration (EIA) said on Monday.

Production has been sliding for several months, but the declines are expected to accelerate sharply in April with a loss of nearly 200,000 bpd of production, the EIA said.