Oil prices dropped early on Wednesday, with WTI Crude sliding below $40 a barrel, after the API reported a larger-than-expected crude inventory build on Tuesday and the market reflected fears of a second wave of coronavirus infections in many countries, including in the United States.
As of 9:10 a.m. EDT on Wednesday, before the EIA's weekly inventory report, WTI Crude was trading down 1.39 percent at $39.85, and Brent Crude was down 1.17 percent on the day at $42.14.
On Tuesday, the American Petroleum Institute (API) estimated another build in crude oil inventories, this time of 1.749 million barrels for the week ending June 19, compared to analyst projections of a smaller inventory build of 299,000 barrels.
Despite the fact that oil production in the United States has now fallen from 13.1 million bpd on March 13 to 10.5 million bpd for June 12, according to the Energy Information Administration, inventories continue to rise as demand remains at low levels given the pandemic and the resulting lockdown.
The decline in oil prices on Wednesday also reflected fears among market participants that a second wave of COVID-19 infections could continue to hamper recovery in oil demand.
"Crude oil's rally to the highest levels since early March has paused with the technical outlook beginning to look more challenging. The attention has for now turned from OPEC+ and successful production cuts to concerns that a renewed spike in COVID-19 cases may slow the process towards a further recovery in global demand," Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a note on Wednesday.
"And while governments will use lockdowns measures as a very last resort due to the destructive impact on already reeling economies, these developments may still impact how we collectively behave in the public space," Hansen noted.
Refinery margins have slightly increased recently in northwest Europe and Singapore, but "margins are still historically weak, remaining below pre-Covid-19 levels, and it is difficult to see significant upside until refined product stocks are brought down to more manageable levels," ING strategists Warren Patterson and Wenyu Yao said today.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More