Oil dives more than 5%, below $30 a barrel as glut grows

Oil dropped more than 5 percent, falling below $30 a barrel on Wednesday as U.S. crude inventories ticked up and gasoline demand remained below normal seasonal levels, offsetting hopes for a recovery in demand as some countries ease coronavirus lockdowns.

Brent was down $1.90, or 6.2 percent, at $29.07 a barrel, reversing course after rising in the past six sessions. West Texas Intermediate (WTI) crude fell $1.30, or 5.4 percent, to $23.26.

Brent crude has almost doubled since hitting a 21-year low on April 22, supported by expectations demand will recover and by a record supply cut led by the Organization of the Petroleum Exporting Countries. Still, the benchmark and its U.S. counterpart remain weighed down by tepid demand and high volumes in storage.

U.S. crude stocks and distillate inventories rose while gasoline inventories fell, the Energy Information Administration said on Wednesday.

Crude inventories rose by 4.6 million barrels in the week to May 1 to 532.2 million barrels, compared with analysts' expectations in a Reuters poll for a 7.8 million-barrel rise.

"That smallish crude oil build was certainly supportive, but there are still problems facing the market in this report," said John Kilduff, a partner at Again Capital in New York. "That huge build in distillates shows that the impact from a lack of airline traffic and over-the-road truck traffic, so that doesn't speak well about the economy and demand going forward."

Gasoline demand is also below year-ago levels.

In April, global oil demand was expected to collapse by at least 20 percent, an unprecedented drop, as governments told people to stay at home. Investors hope for a recovery now that Italy, Spain, Nigeria and India as well as some U.S. states have started to allow some people to go back to work and opened up construction sites, parks and libraries.

Germany's federal government and 16 states have agreed on ways to relax the lockdown.

To reduce the glut, OPEC and its allies agreed to a record oil output cut of 9.7 million barrels per day, about 10 percent of pre-coronavirus demand. That reduction began on May 1.

For now though, soaring inventories are a reminder of excess supply lingering in the market.

"We would tend to agree that the market has bottomed out, but would caution against getting overly excited about this," said analysts at JBC Energy. "The data trundling in for April really is shockingly bad."