Oil prices fell more than 5% on Wednesday, sending Brent to a four-month low as surging coronavirus infections in the United States and Europe prompted renewed lockdowns and fed expectations for new declines in fuel demand.
Also pressuring prices, U.S. crude stockpiles rose more than expected last week as production surged in a record build, according to the U.S. Energy Information Administration.
“The increase in oil production led to an unexpected build of crude oil, and given the additional lockdowns we are seeing in Europe, that is just further heaping bad news on the oil market,” said Andy Lipow, president of consultants Lipow Oil Associates.
Brent futures fell $2.08, or 5.1%, to settle at $39.12 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $2.18, or 5.5%, to $37.39.
That was the lowest close for Brent since June 12 and for WTI since Oct. 2. It was the biggest daily percentage losses for both benchmarks since Sept. 8.
Crude price declines mirrored downturns in other risk-asset markets, as U.S. stock indexes were all lower, with the S&P 500 down 2.9%.
The safe-haven U.S. dollar rose 0.5% on prospects of national lockdowns in Germany and France to fight the pandemic. The stronger dollar makes oil more expensive for holders of foreign currencies, which traders said weighed on crude prices. [/USD]
The United States, Russia, France and other countries have registered record numbers of COVID-19 cases in recent days and European governments have introduced new curbs to try to rein in the fast-growing outbreaks.
Traders said crude prices were also hit by fading prospects for a quick deal on a new U.S. stimulus and increasing oil output from Libya.
On Tuesday, U.S. President Donald Trump acknowledged that a coronavirus economic relief package was unlikely until after next week’s election.
Libya’s production is expected to rebound to 1 million barrels per day (bpd) in the coming weeks.
The head of Saudi Aramco’s trading arm said the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, will have to contend with a “lot of demand issues” before raising supply as expected in January 2021.
“Between the United States and Libya, production is up almost 2 million bpd in the past couple weeks,” said Robert Yawger, director of energy futures at Mizuho in New York, noting if OPEC+ takes the view that U.S. producers are only going to increase production, then OPEC+ may “unleash the 2 million barrels in January and let the chips fall where they may … most likely crude oil down considerably.”
The market, meanwhile, shrugged off this week’s temporary decline in U.S. output as energy firms shut around half of offshore Gulf of Mexico production ahead of Hurricane Zeta, which will slam into the Gulf Coast later Wednesday.