Oil prices dropped by nearly 4% on Thursday over concerns about weak demand growth as coronavirus cases rise with U.S. crude inventories touching an all-time high and the U.S. Federal Reserve saying recovery from the pandemic might take years.
Brent crude futures dipped by $1.47 or 3.52% to $40.26 per barrel by 09:07 West Africa Time. It had fallen by as much as $1.53 or 3.7% earlier in the session.
U.S. West Texas Intermediate (WTI) crude futures fell by $1.57 or 3.96% a barrel, after weakening earlier by as much as $1.69 or 4.3%.
Meanwhile, Nigeria’s Bonny Light resisted the market trend on Wednesday to advance by 22 cents or 0.56% to $39.77 per barrel.
U.S. crude stocks increased suddenly by 5.7 million barrels in the week to 5th June to record 538.1 million barrels as imports were lifted by the arrival of supplies purchased by refiners when Saudi Arabia saturated the market in March and April according to data provided by Energy Information Administration (EIA).
Jeffrey Alley, market analyst at New York-based OANDA Corporation, said the impact of the Saudi import rise on pricing should be “transitory.”
“Nevertheless, in the short-term, oil looks vulnerable to a downside correction to thin out weak longs,” he said.
Data from the EIA also demonstrated that gasoline storage grew beyond expectation to 258.7 million barrels. Distillate stockpiles, which comprise diesel and heating oil, expanded by 1.6 million barrels but the growth was smaller than in previous weeks.
The market took a dim view on the stock builds although there were indications of improving gasoline demand, said Vivek Dhar, commodities analyst at Commonwealth Bank.
Read also: Oil prices fall, as U.S stock rise stokes oversupply fears, Bonny Light sheds 2.06%
“Most of the (price) gains have come from when strict lockdowns were lifted. Coming back to where it was pre-COVID – that will take some time,” he said.
Contributing to the negative sentiment, U.S. Federal Reserve stated in its first forecasts of the pandemic era that the world’s biggest economy would contract by 6.5% in 2020, with the unemployment rate at 9.23% at the end of the year.
“Short-term and fast money traders are very much inclined to sell outright or to take profits on any hint of bearish data,” said Stephen Innes, chief global market strategist at Axicorp.
In a further sign that recovery will continue to be overshadowed by the pandemic, total U.S. cases reached 2 million on Wednesday, with new infections advancing slightly after five weeks of declines, according to Reuters.
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