While green hydrogen dominates global…
Oil markets have kicked off…
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.
As of 11:20 a.m. EDT, WTI Crude was plunging by 8.13 percent at $36.38 and Brent Crude had slipped below the $40 a barrel mark, down by 7.07 percent on the day at $38.78.
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
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
We have seen crude oil production rising continuousely from last 10 years that led to continuous rise in inventories, now we will have to go for production cut for minimum of 4-5 years beginning with 2020.
And the general picture is telling us that the global oil fundamentals are getting stronger with China’s economy leading the charge. China’s economy is the real driver of both the global economy and also the global oil market being 28% bigger than the United States’ based on purchasing power parity (PPP). Furthermore, China’s economic recovery is projected to be back to pre-COVID-19 levels by the end of this year. Surely China’s economic recovery could easily offset gloomy US economic prospects.
Therefore, oil prices could be expected not only to reverse this sudden drop in prices shortly but also hit $45-$50 a barrel in the second half of this year and touch $60 in early next year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London