Oil prices sank 4% as coronavirus surge weighs on demand

Oil prices dropped by around 4% on Thursday, since the surging coronavirus infections globally threatened a recovery in fuel demand. 

This is because major oil producers, including OPEC and its allies, are set to increase output. 

WTI crude oil futures dropped by $1.52, or 3.7%, and were trading at $39.75 a barrel in the midday of trading. The most active Brent crude futures contract for October decreased by $1.35, or 3.1%, to $42.74 a barrel. Meanwhile, the contract for September Brent, which expires today, dropped by $1.34 to $42.41 a barrel.

Both benchmark contracts increased on Wednesday after the US Energy Information Administration reported the largest fall in crude stocks in 6 months. 

The coronavirus outbreak destroyed the US economy

The coronavirus outbreak had a devastating impact on the United States, the world’s most significant oil consumer. It disrupted the global supply of goods and made it difficult for the country’s companies to fill orders. The US economy contracted with an extreme course in the second quarter. The outbreak reduced the labor supply, and, besides, it slowed the demand for US products and services. The US GDP fell at a 32.9% annualized rate. Ever since 1947, when the government started keeping records, this has been the biggest drop, according to the Commerce Department. 

The death toll from coronavirus has now exceeded 150,000 in the US. Brazil’s outlook is the second-worst in the world, with daily records of confirmed cases and deaths. Yesterday, Australia hit a new record in the number of cases. 

Tamas Varga, from PVM, stated that the recent rebound of the coronavirus outbreak is a dangerous sign that the upside is limited in the short future. 

Delay in oil demand recovery is likely to last through to 2020

The potential danger to a recovery in crude oil demand comes as OPEC and its allies are about to raise output in August. They will add around 1.5 million barrels per day to the global supply. 

According to Stephen Innes, a chief global market strategist at AxiCorp, the recovery of OPEC+’s production may test the resilience of the market sentiment in the next weeks.

Oil industry experts are getting ready for weak oil demand. Vopak, the world’s biggest independent oil storage company, stated that the commodity demand may stay low throughout the year. On the other hand, inventories are regularly increasing. This is a warning sign for a storage crisis the US oil market already faced in April when black gold prices sunk below zero.