Crude futures plunged by the most in more than two weeks as jitters reverberated through markets a day after the Federal Reserve provided a gloomy outlook for the U.S. economy.
The rally that’s brought West Texas Intermediate crude from negative territory to the high $30-a-barrel range this month due to production cuts by OPEC and its allies and the easing of lockdowns is showing signs of fading.
Federal Reserve Chairman Jerome Powell said Wednesday that the coronavirus pandemic continues to pose considerable risks to the economy. WTI futures tumbled as much as 8.7% Thursday.
Plus, oil inventories in the U.S. are at record-high levels and a true demand recovery remains shaky given the risk of a second wave of coronavirus cases in some U.S. states.
“The surprisingly bearish stats, particularly on crude, the relatively dour comments by the Fed yesterday and fears of a resurgence of the coronavirus have all added up to the price weakness today,” said Thomas Finlon, director of the Energy Analytics Group in Wellington, Florida.
Many in the oil market are too optimistic that the impacts of coronavirus will be a short-term blip, Standard Chartered analysts Emily Ashford and Paul Horsnell wrote in a report.
On the supply side, higher crude prices have pushed some producers to turn on the taps. U.S. crude stockpiles rose last week to 538.1 million barrels, according to the Energy Information Administration. That’s the highest level in data compiled by Bloomberg since 1982.
In a more positive sign, data showed that oil demand in the United Kingdom has been steadily recovering in recent weeks. Despite that, there’s still a massive glut to be cleared globally, including more than 180 million barrels of crude stored at sea, according to Vortexa data.