By Barani Krishnan
Investing.com - Oil prices fell as much 8% on Thursday in their sharpest selloff in six weeks amid fears of a second wave of coronavirus infections in the United States and indications from the Federal Reserve that the economy could struggle for another two years at least from the pandemic.
Data showing U.S. crude stockpiles at 3-year highs and Wall Street’s 3% plunge on Thursday added to investors’ concerns.
Prior to Thursday’s slump, crude prices had a near unbroken run higher for six weeks, with the U.S. West Texas Intermediate benchmark gaining some 300% from April lows and global benchmark Brent rising about 170%.
“If the increase in coronavirus cases becomes a second wave, then a potential reversal in the demand gains could be had,” said Price Futures Group analyst Phil Flynn, who’s typically bullish on oil.
New York-traded WTI settled down $3.26, or 8.2%, at $36.34 per barrel. It hit 3-month highs of $40.44 on Monday, climbing from just over $10 a barrel on April 28.
London-traded Brent slumped $3.18, or 7.7%, to settle at $38.55. It rose to 3-month highs of $43.41 at the start of the week
The rebound in crude over the past six weeks were driven by cuts in oil rigs and well shutdowns in U.S. oil producing patches. Global supply reductions of up to 9.7 million barrels per day targeted by OPEC also helped.
Thursday’s slump came as total U.S. Covid-19 cases topped 2 million, with a jump in cases reported in Florida, Texas and Arizona after five weeks of declines across the country. The potential for a second wave of infections from the Covid-19 virus across the U.S. could prompt another partial shutdown.
Federal Reserve Chairman Jay Powell said on Wednesday the central bank might leave U.S. interest rates at near zero until the end of 2022. That spooked investors into thinking that economic recovery from the pandemic could take much longer than thought, despite an encouraging rebound of 2.5 million jobs in May. Overall, Covid-19-related job losses total about 20 million jobs.
Powell’s remarks sunk Wall Street on Thursday, with the Dow plunging 1,000 points or nearly 4%, some 90 minutes after its open.
Adding to the concerns of oil investors were U.S. commercial crude oil inventories, which grew by 5.72 million barrels last week, according to data from the Energy Information Administration.
“This increase now sees total U.S. commercial crude oil inventories stand at 538 million barrels, surpassing the levels seen back in early 2017, and in fact the highest level going as far back as 1982,” analysts at ING wrote in a research note.
The EIA data on crude stockpiles was released on Wednesday, but did not make much of an impact in the previous day’s trading in oil.