Brent crude plunged on Thursday, keeping the bearish momentum. It has expanded losses of more than 5% recorded in the last trading session, triggered by record-high U.S. crude inventories and the resurgence of COVID-19 cases, which intensified oil traders’ concerns that oil demand might plummet.
Brent crude lost about 0.7%, to trade on key support levels at $40 per barrel, after losing more than 5% on Wednesday.
Understanding Brent Crude: Brent crude is the leading global benchmark for Atlantic basin crude oils. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including Nigeria’s crude.
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“These are all important oil demand centers. A second wave of infections and lockdowns will derail the global economic recovery and with it, oil demand and prices,” said Stephen Brennock of broker PVM.
Yesterday’s selloff came after American government data showed crude inventories skyrocket by 1.4 million barrels, driving crude oil inventories to a record high for a third straight week.
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“The thing I was most concerned about was the rebound in domestic production and it was up – as a standalone it was capable of doing some damage to the market,” Bob Yawger, director of energy futures at Mizuho said to CNBC.
However, to tackle weakened oil demand, OPEC and its major allies agreed to a record supply cut that started last month. Nigeria and other major oil-producing countries pledged to produce less crude oil, in order to support crude oil prices. OPEC said these cuts were already serving its purpose.
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“The oil market was strongly supported by a reduction of the global crude oil surplus, thanks mainly to the historic voluntary production adjustment agreement,” OPEC said, adding that it saw a “gradual recovery” in demand until the end of the year.
