Oil plummets 8% on 2-pronged threat from COVID resurgence and inventory increase

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  • Oil prices slumped on Wednesday as investors stared down a larger-than-expected jump in US crude inventories and surging COVID-19 case counts in several states.
  • Inventories leaped by 1.75 million barrels to 545 million barrels last week, according to an American Petroleum Institute report seen by Reuters. Economists expected a build-up of just 299,000 barrels over the period.
  • A second wave of coronavirus cases threatens to halt travel activity and stifle a demand rebound.
  • West Texas Intermediate crude futures sank as much as 7.6% to $US37.31.
  • International benchmark Brent crude plunged 7.1% to an intraday low of $US39.62.
  • Watch oil trade live here.

Oil futures plummeted on Wednesday after new industry data and coronavirus case counts pointed to an aftershock in the critical commodity market.

Inventories jumped by 1.75 million barrels in the week ended June 19 to 545 million barrels, according to an American Petroleum Institute report seen by Reuters. Economists expected an increase of just 299,000 barrels. The larger-than-expected buildup threatens to flood the market with unwanted inventory as demand remains well below pre-virus levels.

West Texas Intermediate crude contracts slid as much as 7.6%, to $US37.31 per barrel, before paring some losses. Brent crude, oil’s international standard, fell 7.1% to $US39.62 at intraday lows.

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The three straight weeks of inventory increases echo a trend that ultimately pushed oil prices into negative territory in late April. WTI contracts nosedived in their last days before expiration as oil storage reached its limit and demand failed to offset the build-up. The moves haven’t been repeated since, though Wednesday’s price action pulled contracts sharply lower from their three-month highs.

Soaring COVID-19 case counts throughout the US further rattled investors hoping for a smooth oil-market rebound. Several states including California, Florida, and Arizona reported spikes in cases throughout the week as reopenings continue. A second coronavirus wave could further tank oil demand as lockdown measures drag onward.

Growing fears of a new trade conflict also hammered the market. The White House is weighing fresh tariffs on $US3.1 billion of exports from the UK, France, Spain, and Germany, according to a late Tuesday release. Any slowdown in global trade stands to stifle a bounce-back in crude prices.

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