By Peter Nurse
Investing.com - Oil markets dropped lower Wednesday, amid concerns about the global recovery in demand and a second wave of the coronavirus.
At 8:45 AM ET (1245 GMT), U.S. crude futures traded 2% lower at $38.16 a barrel. The international benchmark Brent contract fell 1.8% to $40.44.
The supply side of the equation has tended to dominate price movements in the crude market since the depths of April’s lows, but following the Organization of Petroleum Exporting Countries and its allies agreeing to massive output curbs the focus has tended to switch to the demand side.
And it’s not looking pretty.
The Organization for Economic Cooperation and Development stated earlier Wednesday that the global economy is on track to suffer the worst recession outside of wartime in 100 years.
Global growth will contract by 7.6% in 2020, the OECD said, assuming there is a second wave of Covid-19 infections, and even if a second wave is avoided there would still be a drop of 6%.
This is even worse than the 5.2% contraction in 2020 the World Bank predicted on Monday.
Speaking of the coronavirus, the World Health Organisation stated earlier this week that new coronavirus cases have reached their highest ever level, pointing to key regions, such as the Americas and Southeast Asia.
This suggests a second wave of the pandemic is not a distant possibility any more, and that would plunge oil demand right back down to lockdown levels.
That said, focus will turn to the release to the official weekly crude oil inventories data, at 10:30 AM ET (14:30 GMT), with the expectation for a decline of 1.74 million barrels for the week ending June 5. This compares with a decline of just over 2 million barrels the previous week.
The American Petroleum Institute reported late Tuesday that U.S. crude supplies rose by 8.4 million barrels for the week ended June 5, a big surprise as the market was expecting a small drawdown.