Oil has had a turbulent year. Crude prices went negative for the first time in history, followed by one of the biggest rallies the industry has ever seen. And now, just when the market is starting to seem somewhat stable, COVID-19 strikes again.
A resurgence of COVID cases in the United States and a gloomy economic forecast from Federal Reserve Chair Jerome Powell has investors scrambling, with oil prices on track to hit their biggest daily decline since April 27th. Once again, oversupply and lack of demand have taken center stage.
Yesterday, the EIA reported that U.S. oil inventories rose by 5.7 million barrels, defying predictions of a 1.45 million barrel build. Adding even more pressure to oil prices, the U.S. Federal Reserve noted that unemployment rates were set to settle near 9.3% by the end of the year, adding that it could take years to return to pre-pandemic employment levels.
COVID-19 has been the main culprit in the market collapse. While many states have already reopened with some strict guidelines, things don't seem to be going as planned.
It took the United States nearly three months to hit the 1 million confirmed cases mark, yet it only to six weeks to double it. On Wednesday, the U.S. crossed the 2 million mark, with many states reporting significant spikes following attempts to ease lockdown restrictions.
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As of this morning, the U.S. has reported over 113,000 COVID-related deaths, and healthcare experts across the globe are warning that the pandemic is nowhere near over, encouraging individuals to maintain social-distancing practices and to wear face masks in public.
Though COVID-19 has taken a clear toll on global economies, some suggest the oil market, in particular, simply rose too quickly.
Jeffrey Halley, senior market analyst, Asia-Pacific at OANDA said "The fall in oil prices is just as much about timing as COVID-19 cases though, coming as both equities and oil were looking overbought on any measure of short-term indicator," adding, "Some sort of correction had been overdue after the massive increase in speculative long positioning, and oil's breath-taking rally over the past month."
By Michael Kern for Oilprice.com