Oil drops nearly 6% on record U.S. crude inventories, pandemic resurgence fears

Oil pumping jacks, also known as "nodding donkeys", operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg via Getty Images

Oil prices fell  nearly 6% on Wednesday after U.S. crude storage hit another record and coronavirus cases rebound in countries like Germany and surge in heavily populated areas of the United States.

Mounting coronavirus cases in the United States, which had its second-largest rise in new infections since the crisis began, China, Latin America and India have unnerved investors and pressured oil prices.

"These are all important oil demand centers. A second wave of infections and lockdowns will derail the global economic recovery and with it, oil demand and prices," said Stephen Brennock of broker PVM.

Brent crude was down $2.29, or 5.5%, to $40.29 a barrel, a day after hitting its highest levels since early March, just before the pandemic and Saudi-Russia price war hit the markets. West Texas Intermediate crude settled $2.36, or 5.85%, lower at $38.01 per barrel.

U.S. crude oil inventories swelled last week by 1.4 million barrels, exceeding analysts' expectations in a Reuters poll for a 299,000-barrel rise, the Energy Information Administration said, citing rising production.

That marked the third straight record for crude in U.S. storage.

"The thing I was most concerned about was the rebound in domestic production and it was up - as a standalone it was capable of doing some damage to the market," said Bob Yawger, director of energy futures at Mizuho.

The International Monetary Fund said the coronavirus is causing wider and deeper damage to economic activity than first thought, and it slashed its 2020 global output forecasts further.

India's oil imports in May hit the lowest since October 2011 as refiners with brimming crude inventories cut purchases.

China, the world's top crude importer, is also expected to slow imports in the third quarter, after record purchases in recent months.