Just barely a few hours after crude oil prices rose to a near 5-week high, it recorded a downward slide due to concerns about the early easing of lockdown prompted by to need to contain the coronavirus pandemic in the U.S. There are fears that the early exit from lockdown could lead to a resurgence in cases and ultimately derail a nascent recovery in demand.
The American WTI fell by 1.55% to sell for $25.38 per barrel, early Wednesday morning after surging 6.8% on Tuesday. Brent crude was down by 2.03% to sell for $29.37 per barrel.
The oil market weakened after US top infectious disease official, Anthony Fauci, stated that states reopening too quickly could set back the road to economic recovery. China’s easing of lockdown suffered a setback after new cases emerged in Wuhan, the epicenter of the outbreak, prompting an order for the entire population of 11 million to be tested.
In addition, according to data from the American Petroleum Institute (API), US crude oil inventory rose while gasoline stocks reduced on Tuesday. The crude oil inventory increased by 7.6 million barrels in the week as against the 4.1 million barrels that analysts had predicted.
Gasoline inventory fell by 1.9 million barrels as against the 2.2 million barrels that were predicted by analysts.
Even with output cuts by OPEC+ and top oil-producing countries, and the gradual easing of lockdowns in some of the world’s top economies, oil price is still about 60% down this year with little clarity about when and if global consumption will get back to the way it was a pre-coronavirus disease.
The US, on Tuesday, cut its forecasts for global petroleum demand this year and next, while consultancy IHS Markit does not see the market recovering to pre-virus levels until the second half of 2021.
Some analysts have suggested that it is unlikely that a rebound in demand will occur in 2020. They believe that barring any second wave of the coronavirus pandemic outbreak, normal demand could be returning towards the last quarter of 2021.
It could be recalled that Saudi Arabia, United Arab Emirates and Kuwait, have all moved for a further output cut, which will be more than what was required under the OPEC+ deal.
Saudi Arabia had announced an additional 1 million barrels per day output cut about 2 days ago. This announcement led to a slump in oil prices.