Oil slipped to around $26 a barrel on Friday as weak demand due to the coronavirus crisis and excess supply pressured the market, even as OPEC and its allies began a record output cut.
The global oil benchmark, Brent crude, has collapsed 60 per cent in 2020 and reached a 21-year low last month as the coronavirus pandemic squeezed demand and OPEC and other producers pumped at will before reaching a new supply cut deal which began on Friday.
Brent for July fell 46 cents, or 1.7%, to $26.02 at 0825 GMT. U.S. crude for June slipped 2 cents to $18.82. Both benchmarks rallied sharply on Thursday. Brent rose 12% and U.S. crude gained 25%.
Output cuts of 9.7 million barrels per day by the Organization of Petroleum Exporting Countries, Russia and other producers began on Friday. Reflecting that effort, the imbalance between supply and demand is set to be halved in May, according to Rystad Energy.
"While this may seem like a drastic improvement from April, the oil market is not magically fixed," said Rystad analyst Louise Dickson. "The storage issue still looms large," she said, referring to oil tanks around the world rapidly filling up.
Demand is likely to underperform, analysts at JBC Energy said, offsetting producer efforts to tackle the supply glut.
"Crude demand is likely to disappoint even if the more optimistic demand recovery forecasts for end-user consumption materialise, due to the high inventory pressure that has built over the last month or so," JBC said.
A Reuters survey on Thursday showed that in advance of the new output cut, OPEC sharply raised output to the highest since March 2019, adding to excess supply on the market.
And underlining the difficulties some producers will face in meeting their commitments, Iraq will struggle to meet its quota of cutting output by nearly a quarter, industry sources said. Iraq is OPEC's second-largest producer.
Also supporting prices, the U.S. Energy Information Administration said that crude inventories rose by 9 million barrels last week, less than the 10.6 million-barrel rise analysts had forecast.
"This is a second straight week of inventory and product demand figures suggesting a bottoming of the U.S. market," said Stephen Innes, chief market strategist at AxiCorp.