Both benchmarks for crude printed weekly declines of about 8% – their first after six weeks of bullish run that rallied crude prices off April’s lows. The recent dip is as a result of fears that a second wave of the coronavirus pandemic will disrupt the market once more.
“This market is at a crossroads. If demand continues to improve, the oil market has a lot more to go on the upside,” said Phil Flynn, senior analyst at Price Futures Group. “If we get into a situation where we start to take steps back with the coronavirus, the market is going to go down.”
In addition, U.S. crude oil inventories surged to a record of 538.1 million barrels, as cheap imports from the Saudis flooded the American oil market.
Why OPEC+ decided to cut oil production: Demand for crude oil dropped, in spite of a deal brokered by the Saudis, Russians, and other oil producers to reduce oil production. The world was also experiencing an oil glut market, with about 100 million barrels of crude produced daily.
The build occurred despite producers from member countries of the Organisation of Oil Exporting Countries (OPEC), Russia, and other allies reducing crude oil output.
Major oil producers slashed oil output by 9.7 million barrels per day, about 10% of normal oil demand, and agreed to extend oil output cut last week.
“While a bullish argument can still be made as production continues to decline with demand still showing improvement, we look for the downtrend in output to begin slowing appreciably while demand recovery could be downsized if the coronavirus continues to ramp up,” said Jim Ritterbusch of Ritterbusch and Associates.