Oil prices extended their 5-percent slump from Wednesday into Thursday morning, plunging by another 5 percent, with WTI Crude sliding to $35 a barrel, as major economies in Europe renewed lockdowns to fight the second wave of the coronavirus.
As of 10:07 a.m. EDT on Thursday, WTI Crude was plunging by 5.27 percent at $35.11, and Brent Crude was plummeting by 4.98 percent at $36.89. The U.S. benchmark slid to its lowest level since June, while the international crude benchmark Brent dropped below $37 a barrel to its lowest price since May this year.
The sell-off in oil intensified this week with market sentiment souring by the day since the American Petroleum Institute (API) reported on Tuesday a bigger build than expected in crude oil inventories of 4.577 million barrels for the week ending October 23. The build was confirmed on Wednesday by the EIA, and oil prices dived 5 percent on concerns about oil demand with surging COVID-19 cases. Brent prices had already slid below the $40 a barrel mark on Wednesday, and on Thursday, the rout extended with Brent prices slipping to $36—the lowest level since the middle of May.
Oil market participants are concerned that the return of lockdowns in Europe will significantly weigh on economic recovery and fuel demand. Two of the largest economies in Europe, Germany, and France, announced lockdowns, which the market was not expecting two or three weeks ago. Industry professionals and executives did not believe that countries would resort again to nationwide lockdowns. Yet, France did, and as of Friday, people will be allowed to go out only for shopping for essential items, for medical reasons, or for an hour-long exercise. The measure will last until the end of November, French President Emmanuel Macron said.
Germany, the biggest economy in Europe, is also restoring a form of lockdown, although a partial one, for the month of November, restricting social gatherings and closing bars and restaurants except for takeaway.
Both crude benchmarks “slumped to the bottom of their respective ranges with surging virus cases in Europe and the U.S. as well as a bigger-than-expected jump in U.S. crude stockpiles taking its toll on the market. Adding to this an ongoing production surge from Libya, the market is likely to trade defensively ahead of Tuesday’s major risk event,” John Hardy, Head of FX Strategy at Saxo Bank, said early on Thursday.
“Brent support at $38.80/b and WTI at $37/b with the risk of a market rout should they give way,” Hardy noted.
By Tsvetana Paraskova for Oilprice.com
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