Oil prices crashed by 7 percent early on Thursday, after the EIA reported on Wednesday record U.S. commercial crude oil inventories while the Fed said America’s economy would shrink by 6.5 percent this year.
The plunge in prices set them on course for the worst daily crash since late April this year.
Over the past few days, the oil market has been spooked by rising U.S. commercial inventories that suggest that the oil demand recovery is not as smooth as some had initially expected.
While supply cuts have been driving the recent oil price rally, the market seemed to have banked on a steady global demand recovery similar to China’s after it exited lockdowns earlier than the other countries.
This week’s inventory report in the U.S., however, was as bearish as it gets, with the Energy Information Administration reporting a rise in U.S. crude oil inventories of 5.7 million barrels for the week to June 5 and an increase in fuel inventories.
At 538.1 million barrels, crude oil stocks were at a record high, and way above the five-year range for this time of the year. To compare, at this time last year, U.S. commercial crude inventories were 485.5 million barrels. Gasoline demand averaged 7.9 million barrels per day in the week to June 5, up from 7.55 million bpd in the prior week, but still well below the 9.877-million-bpd demand for the same week a year ago, according to EIA data.
To add more concern about oil demand recovery, the Fed said on Wednesday that it expects real GDP in the U.S. to drop by 6.5 percent, noting that “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
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.