Oil drops more than 5% to three-week low as coronavirus cases surge

A view of the Marathon Petroleum Corp's Los Angeles Refinery in Carson, California, April 25, 2020.
Robyn Beck | AFP | Getty Images

Oil prices fell over 5% to a three-week low on Wednesday as surging coronavirus infections in the United States and Europe are leading to renewed lockdowns, fanning fears that the unsteady economic recovery will deteriorate.

Brent futures fell $2.12, or 5.15%, to $39.08 a barrel, while U.S. West Texas Intermediate (WTI) crude settled 5.5%, or $2.18, lower at $37.39 per barrel, its lowest level in three weeks.

That puts both benchmarks on track for their lowest closes since Oct. 2.

Crude price declines mirrored downturns in other risk-asset markets, as U.S. stock indexes were all lower, with the S&P 500 down 2.7%.

The safe-haven U.S. dollar rose 0.5% on prospects of national lockdowns in Germany and France to fight the pandemic. The stronger dollar 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.

Adding pressure to oil prices, 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.

"Crude oil domestic production number is up a crazy amount – why would producers do that? That's not good, as it implies we will have a lot of crude oil for a long time coming out of the ground," said Robert Yawger, director of energy futures at Mizuho in New York.

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.

On Tuesday U.S. President Donald Trump acknowledged that a coronavirus economic relief package was unlikely until after next Tuesday's election.

Libya's production is expected to rebound to 1 million barrels per day in the coming weeks.

All that bearish news, overshadowed the bullish shutdown of around half of U.S. offshore Gulf of Mexico production ahead of Hurricane Zeta, which is expected to slam into the Gulf Coast later Wednesday.