Despite the fact that oil posted mixed results on Friday morning, prices were set for their first weekly loss in seven weeks after a spike in coronavirus infections across the United States had market participants worried about the pace of oil demand recovery.
On Thursday, oil prices crashed by 8 percent, driven by fears of a second wave of COVID-19. Market sentiment was further depressed by the EIA reporting on Wednesday record U.S. commercial crude oil inventories, while the Fed said America’s economy would shrink by 6.5 percent this year.
Thursday’s price collapse was the worst crash since late April this year.
Following a rally in recent weeks, oil prices are now on course for the first weekly decline since late April, after the market focused on demand, and on the possibility that global oil demand will take months, and potentially more than a year, to recover.
A reported spike in coronavirus cases across half of the U.S. states further weighed on sentiment, rekindling fears that a potential slower easing of lockdowns could stall the oil demand recovery. Nashville, Tennessee, delayed its phase three re-opening, while Houston, Texas, is seeing signs of a second wave.
The bearish mood on the market this week is in sharp contrast with the rally in recent weeks, in which speculators and investors had focused on the record supply cuts from OPEC+ and on the fast economics-driven production curtailments in North America.
Investment banks, including Morgan Stanley and Goldman Sachs, warned early this week that oil prices might have risen too fast too soon in May and early June, considering the still tepid oil demand recovery.
By Tsvetana Paraskova for Oilprice.com
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