This year has been a turbulent one for the oil market as crude oil prices went negative for the first time in history. This was closely followed by one of the most dramatic rallies the industry has ever seen as the oil market stabilizes.
However, a resurgence of COVID-19 cases in the United States which is compounded by another record build up in US oil inventories and a gloomy economic forecast from the Federal Reserve Chairman, Jerome Powell has seen the oil prices hit their biggest daily decline since April 27. The lack of demand and supply glut has once again taken centre stage.
The Brent crude lost over 8% to sell at about $38 per barrel and the American WTI lost declined by about 9% to sell at about $36 per barrel.
According to Energy Information Administration (EIA), the US oil inventories unexpectedly rose by 5.7 million barrels of crude oil to 538.1 million barrels, which is contrary to the earlier predictions of 1.45 million barrel build-up. This is due to the arrival of supplies that were bought by refiners when Saudi Arabia flooded the market in March and April.
The high inventory, together with the recent announcement of an unemployment rate of almost 9.3% by the end of 2020 by the US federal reserve, has put more pressure on the oil market. It is predicted that it could take years to get back to pre-pandemic employment levels. The US federal reserve had also projected that the world’s biggest economy will shrink by 6.5% this year.
The resurgence of the coronavirus pandemic has been the main cause of the oil market collapse. It took almost 3 months to hit I million confirmed cases, whereas it took only 6 weeks to hit 2 million mark with many states reporting significant spikes.
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Analysts have said that the prices have come under pressure again over concerns about the slow pace of the demand recovery.