Oil prices dipped further on Thursday after tumbling more than 5% in the previous session, as a record build in U.S. crude inventories and a rapid resurgence in COVID-19 cases cast doubts on fuel demand recovery.
U.S. West Texas Intermediate (WTI) crude futures fell 22 cents, or 0.6%, to $37.79 per barrel at 0532 GMT on Thursday, after dropping $2.36 on Wednesday.
Brent crude futures fell 30 cents, or 0.7%, to $40.01 per barrel after falling $2.32 on Wednesday. A day earlier, the benchmark contract hit its highest price since early March, just before pandemic lockdowns and a Saudi-Russian price war slammed markets.
“Prices retreated after the EIA data signalled an inventory build much higher than expected,” said Avtar Sandu, senior commodities manager at Singapore-based brokerage Phillip Futures.
Analysts, however, said the build of 1.4 million barrels was mostly due to a flotilla of Saudi cargoes booked by U.S. refiners when prices slumped in March. Those shipments are due to ease soon.
“Markets had previously ignored much higher inventory numbers in recent times when momentum was strong. In other words, the facts have been fitted to the narrative the market wanted to see,” said Jeffrey Halley, senior market analyst at OANDA.
Worries about a second wave of COVID-19 cases in several U.S. states, where lockdowns had eased, and a rapid spread of infections in South America and South Asia are expected to keep a lid on fuel demand, analysts said.
“The latest trends there are not encouraging,” said National Australia Bank’s head of commodity research, Lachlan Shaw.
The fear is that even if lockdowns are eased, people will stay home because of the perceived health risks.
Stephen Innes, market strategist at AxiCorp, said mobility data from Google showed driving in Texas, Florida and to a certain extent California was flatlining.
In another reminder of fuel demand woes, Australia’s flagship airline, Qantas Airways, said on Thursday it expected little revival in international travel until at least July 2021, as it slashed a fifth of its workforce and grounded 100 planes.