We all know that there is enough oil in the world, the problem is in the demand and how it will recover after this crisis.
Oil prices fell more than 5%, sending Brent to a four-month low on Wednesday as surging coronavirus infections in the United States and Europe lead to renewed lockdowns and expectations that unsteady economic demand will worsen.
Also weighing on the market, U.S. crude stockpiles rose more than expected last week as production surged in a record build, according to the U.S. Energy Information Administration.
“Certainly the increase in oil production led to a unexpected build of crude oil, and given the additional lockdowns we are seeing in Europe, that is just further heaping bad news on the oil market,” said Andy Lipow, president of consultants Lipow Oil Associates.
Brent LCOc1 futures fell $2.33, or 5.7%, to $38.87 a barrel by 1:10 p.m. EDT (1710 GMT), while U.S. West Texas Intermediate (WTI) crude CLc1 fell $2.45, or 6.2%, to $37.12.
That puts Brent on track for its lowest close and biggest daily percentage loss since June 12. WTI was on track for its lowest settle since Oct. 2 and its biggest daily percentage decline since Sept. 8.
The safe-haven U.S. dollar .DXY rose 0.5% on prospects of national lockdowns in Germany and France to fight the pandemic. The stronger dollar .DXY makes oil more expensive for holders of foreign currencies, which traders said weighed on crude prices.
The United States, Russia, France and other countries have registered record numbers of COVID-19 cases in recent days and European governments have introduced new curbs to try to rein in the fast-growing outbreaks.
Traders said crude prices were also hit by fading prospects for a quick deal on a new U.S. stimulus, and increasing oil output from Libya.
“COVID-19 restriction measures are in the driving seat of oil price formation still, with the U.S. election in a firm second place, followed by other news such as Libya (and) crude stock numbers,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said.
Libya’s production is expected to rebound to 1 million barrels per day in the coming weeks.
Around half of U.S. offshore Gulf of Mexico production has shut ahead of Hurricane Zeta, which is expected to slam into the Gulf Coast later Wednesday.