Oil prices lost more than $US1 a barrel overnight as restrictions on travel worldwide slashed fuel demand.
US crude futures plunged more than six per cent after the United States scrapped plans to buy domestic oil for its emergency reserve.
The head of the International Energy Agency said global oil demand could drop as much as 20 million barrels per day or 20 per cent of total demand as three billion people are currently in a lockdown because of the coronavirus outbreak.
Concerns about demand also overshadowed expectations that a $US2 trillion US stimulus package will bolster economic activity.
West Texas Intermediate crude futures dropped $US1.60, or 6.5 per cent, to $US22.89 a barrel. Brent crude futures fell $US1.06 to $US26.33, or 3.9 per cent, a barrel. Both contracts are down about 60 per cent this year.
“Concerns around the demand outlook continue to worsen by the day,” said John Kilduff, a partner at Again Capital in New York.
“It’s just incessant downward pressure on this complex.”
US futures were notably weaker than international benchmark Brent crude.
The US Department of Energy scrapped a plan to purchase domestic crude oil for its Strategic Petroleum Reserve after funding was not included in the broader stimulus package.
“The SPR element is totally a domestic issue and it has been percolating in the market for a couple weeks,” said Bob Yawger, director of futures Mizuho in New York.
“There was a certain assumption that it was going to happen so you had that backstop, to a certain degree, that didn’t exist for the international benchmark.”
The US Senate unanimously passed the $US2 trillion bill aimed at helping struggling workers and industries hurt by the impact of the coronavirus epidemic, and sent the legislation to the House of Representatives.
The House is expected to vote on Friday.
But with demand disappearing and output rising, the outlook for oil is bleak.
The weakening demand is leading oil refineries from Texas to Thailand to reduce operating rates.
The world’s top oil and gas companies have cut spending by about 20 per cent, including majors Chevron, Total and Royal Dutch Shell.
Brazil’s Petrobras said it was dialling back short-term production by 100,000 bpd, delaying a dividend payment and trimming its 2020 investment plan.
At the same time, the collapse of a supply-cut pact between the Organisation of the Petroleum Exporting Countries and other producers led by Russia, known as OPEC+, is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May.
Oil stockpiles are already rising with tanks around the world filling fast despite a 50 per cent-100 per cent jump in leasing costs.
US crude inventories rose by 1.6 million barrels last week, marking the ninth straight week of increases. Products supplied, a proxy for US demand, dropped nearly 10 per cent to 19.4 million bpd, government data showed on Wednesday.