Crude Oil Loses 9% on Renewed Fears

June 12, 2020
brent crude oil

By Adedapo Adesanya

Crude oil prices fell more than 9 percent on Thursday as fears that a second wave of coronavirus could stunt economic activity and demand pushed investors to sell off.

The Brent crude, which traded above $42 per barrel earlier this week, fell by 8.88 percent or $3.68 to sell at $38.00 per barrel, while the US West Texas Intermediate (WTI) crude futures, which had one point went above $40, also fell by 9.4 percent or $3.74 to trade at $35.86 per barrel.

Analysts said rising coronavirus cases this week in India and the US increased the threat of a second wave of COVID-19, raising talks of a possible second lockdown across major economies of the world, which could weigh on the oil market.

India and the US are some of the largest countries in terms of population having huge impacts on the consumption of the commodity. About 20,800 new cases were reported in the US, 4.1 percent higher than last week. India, on its part, reported almost 10,000 new cases on Thursday, its highest daily rise.

If these countries go into lockdown, it will tell on demand and prices may fall back to their April levels when Brent fell below $16 and WTI went below $0.

Prices have largely rallied since May 2020 on signs economies were inching closer to recovery and due to an extension of production cuts until July.

The Organisation of the Petroleum Exporting Countries (OPEC) and its oil-producing allies known as OPEC+ agreed to extend its record production curb by about 10 percent of pre-coronavirus global demand to the end of the end of next month.

But the threat of a resurgence in coronavirus cases could affect those gains and render the cuts ineffective.

Also contributing to the bad outlook was the significant rise in crude inventories in the US.

On Wednesday, data showed that US crude oil inventories rose by 5.7 million barrels compared to last week, suggesting demand is not recovering as expected even as the US economy reopened.

For the week ending June 5, the Energy Information Administration (EIA) said inventory rose by 5.7 million barrels to a record high of 538.1 million barrels.

In the US, production has pulled back from a record of over 13 million barrels per day in March as historically low prices prompted companies to reduce output.

But with oil moving higher in recent weeks, some producers have begun to produce more instead of reducing, this is however sending prices lower.

To add more concern, the US government expects real gross domestic product (GDP) in the country to drop by 6.5 percent as a result of the COVID-19 health crisis which will weigh heavily on economic activity, employment, and inflation and poses risks to the economic outlook over the medium term.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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