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Oil futures tumbled on Thursday as a report on rising U.S. inventories, evidence of climbing cases of coronavirus, and a gloomy economic outlook from the Federal Reserve combined to undermine the recovery from historic lows seen in April.
“Oil prices have mostly retreated today after the EIA reported that US crude inventories expanded to an all-time high,” wrote Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy, in a Thursday note.
Indeed, the Energy Information Administration reported Wednesday that U.S. crude inventories rose by 5.7 million barrels for the week ended June 5. That defied a forecast by analysts polled by S&P Global Platts for an average decline of 3.2 million barrels.
Meanwhile, Fed Chairman Jerome Powell on Wednesday emphasized that the economic outlook for the U.S. would be challenging as the central bank kept rates at a range of 0% and 0.25% following its policy meeting and warned that millions of people might not return to their jobs.
“In the last weeks, oil prices have rallied on the back of supply curtailments that have largely brought global crude inventories under control, but prices are once again under pressure as concerns over the pace of the demand recovery intensified,” the Rystad analyst wrote.
A weaker recovery from the pandemic that has hobbled much of the global economy can damage demand for crude oil and its byproducts as the industry struggles with concerns about the efficacy of measures to limit oil output.
Traders are also concerned about signs that coronavirus cases in the U.S. are continuing to rise and topped the 2 million mark just as businesses are resuming activity. The global case tally for the coronavirus that causes COVID-19 climbed to 7.39 million on Thursday, according to data aggregated by Johns Hopkins University.
West Texas Intermediate crude for July delivery CL.1, -4.74% CLN20, -4.74%, the U.S. benchmark, was down $1.66, or 4.2%, at $37.94 a barrel on the New York Mercantile Exchange, after rising 1.7% and marking its highest settlement since March 6 on Wednesday.
Global benchmark Brent oil for August delivery BRNQ20, -3.95% retreated $1.78, or 3.6%, at $40.24 a barrel on ICE Futures Europe, following a 1.3% gain.
The oil market had been reacting to recovering demand as business activity had begun to restart amid signs that the coronavirus pandemic was receding in most developed countries, as well as the newly extended pact between the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to cut production by 9.7 million barrels a day through July.
OPEC members pumped 24.32 million barrels per day in May, representing a reduction of 5 million barrels a day from their baseline production level, according to a survey conducted by S&P Global Platts, released Wednesday. Non-OPEC partners, led by Russia, produced 13.89 million barrels per day, for a cut of 3.28 million barrels per day. All told, OPEC+ delivered 85% of its agreed product cuts last month, the survey showed.
