By Adedapo Adesanya
Oil prices took a downturn on Wednesday, shedding as much as 5 percent as investors worried about record high crude inventories and a second wave of the coronavirus pandemic.
The Brent crude dropped $2.26 cents or 5.3 percent to trade at $40.37 per barrel, while the US West Texas Intermediate crude lost $2.25 or 5.6 percent to settle at $38.06 per barrel.
The latest data from the United States’ Energy Information Administration (EIA) brought about fresh panic as US crude oil inventories swelled last week by 1.4 million barrels, far exceeding analysts’ expectations.
That marked the third straight record for crude in US storage, bringing about a renewed fear of an oversupplied market, something last experienced in April.
The American Petroleum Institute (API), another energy industry group, also reported a 1.7 million barrel increase in crude stockpiles and a 3.9 million barrel drop in petroleum supplies in the world’s largest crude producer.
Soaring oil stockpiles earlier this year sank oil prices as traders scrambled to unload contracts and offered steep discounts to buyers.
Another key factor that scared investors at the midweek market is the glaring possibility of a second wave of the coronavirus pandemic.
This could stall the reopening of global economies and cut fuel demand as cases topped 9.2 million on Wednesday.
In the latest round of news surrounding the virus, there were records of rising cases in the United States, China, Latin America, and India – some of the largest consumers of oil.
This is worrying as a second wave of infections and lockdowns will derail the ongoing global economic recovery and by extension crude demand and prices.
This took a worse turn when reports showed that India’s oil imports in May hit the lowest since October 2011 as refiners with large oil inventories cut purchases, a worrying number as the country is one of the world’s largest crude importers.
Also, China, the world’s top crude importer, is also expected to slow imports in the third quarter, after record purchases in recent months, another blow to the market.
Market analysts also point out that with this latest development, attention has for now turned from OPEC+ and successful production cuts to concerns that a renewed spike in COVID-19 cases may slow the process towards a further recovery in global demand.
