U.S. oil prices were on track for a third consecutive drop. A drill rig in Loving County, Texas.
Photo: angus mordant/ReutersOil prices fell Tuesday, dropping back toward an 18-year low with inventories set to continue rising despite recent supply cuts.
U.S. crude futures slid 4.4% to $21.43 a barrel on the New York Mercantile Exchange, heading for a third consecutive drop and falling back toward their 18-year low of $20.09 from March 30. Prices are down about 65% this year. Brent crude, the global gauge of oil prices, fell 2% to $31.11 a barrel on the Intercontinental Exchange.
Prices have fallen despite a weekend agreement by the Organization of the Petroleum Exporting Countries and allies including Russia to curb output. North American producers, including the U.S., were also part of the accord, which is set to remove millions of barrels a day of supply from global markets.
Many analysts said the deal is too little, too late. Travel restrictions to halt the coronavirus have decimated fuel consumption for several weeks already, and the lost demand still dwarfs supply curtailments. Some estimates for the demand drop are roughly 25 million to 35 million barrels a day, while the supply cuts and other outages are only seen taking at most about 20 million barrels a day off the market.
Traders were looking ahead to weekly U.S. inventory data slated for Wednesday. Stockpiles have surged recently with demand for petroleum products tumbling. Inventories climbed in 11 consecutive weeks through April 3, with the 15-million barrel increase in the most recent week the largest ever in Energy Information Administration data going back to 1982.
Some investors don’t see prices recovering until demand normalizes.
“Oil prices will hover around current lows until containment measures are lifted,” said Caroline Bain, chief commodities economist at Capital Economics, in a note.
The muted response to Sunday’s supply accord is the latest setback for producers, many of which can’t cover operating costs for many projects with prices at these levels. Some companies in the U.S. and Canada have already been forced to shut in productive wells, and analysts see that trend potentially contributing to a supply deficit when demand begins increasing again.
That will likely be a long-term process, though, as stockpiles around the world have already been rising for weeks.
Elsewhere in commodities Tuesday, most-active gold futures advanced 0.3% to $1,767.20 a troy ounce, heading for a fresh seven-year high. Prices are up about 16% for the year, boosted by robust demand for the haven metal and physical shortages due to shutdowns of mines, refineries and normal transportation routes that move gold around the world.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
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