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Crude Oil Crashes 5% on Bigger-Than-Expected Supply Build, COVID-19 Second Wave

Summary:
Crude oil futures crashed more than 5% in the middle of the trading week, extending the sector’s bearish trend in October. Oil prices plummeted on rising coronavirus cases in major economies that would impact crude demand. The US government also reported the first supply build in three weeks, which was larger than what the market had forecast. Overall, these are troubling signals for the industry as it braces for wintry weather. December West Texas Intermediate (WTI) crude oil futures plunged .26, or 5.71%, to .28 per barrel at 14:30 GMT on Wednesday on the New York Mercantile Exchange. US crude is already down nearly 7% this week, bringing its year-to-date loss to 40%. Brent, the international benchmark for oil prices, slipped below . December Brent crude futures shed .04,

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Crude oil futures crashed more than 5% in the middle of the trading week, extending the sector’s bearish trend in October. Oil prices plummeted on rising coronavirus cases in major economies that would impact crude demand. The US government also reported the first supply build in three weeks, which was larger than what the market had forecast. Overall, these are troubling signals for the industry as it braces for wintry weather.

December West Texas Intermediate (WTI) crude oil futures plunged $2.26, or 5.71%, to $37.28 per barrel at 14:30 GMT on Wednesday on the New York Mercantile Exchange. US crude is already down nearly 7% this week, bringing its year-to-date loss to 40%.

Brent, the international benchmark for oil prices, slipped below $40. December Brent crude futures shed $2.04, or 4.9%, to $39.57 on London’s ICE Futures exchange. Brent is down 5% this week and has fallen more than 40% so far this year.

According to the US Energy Information Administration (EIA), domestic crude inventories spiked 4.32 million barrels for the week ending October 23, coming in higher than the market forecast of 1.23 million barrels.

Crude inventories at the Cushing, Oklahoma storage facilities decreased by 422,000 barrels. Distillate supplies plunged 4.491 million barrels, while gasoline stockpiles slipped 892,000 barrels.

The second wave of the coronavirus pandemic has arrived for many major countries around the world. The US, Canada, and Europe have posted record numbers of new infections in recent days. While Washington and Ottawa have refrained from introducing new restrictions to limit the resurgence in outbreaks, European governments, like Spain and Italy, have implemented new lockdown measures.

In total, there are approximately 44 million cases, with a death toll of 1.17 million. At the same time, close to 30 million people have recovered from COVID-19.

Still, investors fear that if new curbs are introduced on a massive scale, it would seriously harm the global economic recovery. Crude oil could be one of the biggest casualties, since demand – at home and abroad – would be decimated, resulting in intensifying oversupplies.

Global financial markets were deep in the red midweek, with the leading US stock benchmarks falling as much as 3%. The metal markets are also sliding on Wednesday as gold tumbled below $1,900 and silver prices dropped under $24.

Although the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, have shown a willingness to adapt to changing conditions, Libya’s output levels are coming back online. Tripoli is projected to see production return to one million barrels per day (bpd) by next month after the country pumped out more crude following political developments.

The other concern is that US oil and gas firms are restarting operations too soon. The Baker Hughes oil rig count topped 200 for the second consecutive week, rising from 205 to 2011 in the week ending October 23. Should American companies attempt to grab more market share, oil-rich countries overseas might renew output and add to the international supply glut.

In other energy commodities, November natural gas futures rose $0.021, or 0.7%, to $3.04 per million British thermal units (btu). November gasoline futures shed $0.061, or 5.36%, to $1.0683 per gallon. November heating oil futures declined $0.0488, or 4.21%, to $1.1102 a gallon.

If you have any questions and comments on commodities today, use the form below to reply.


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Andrew Moran
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance

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