Oil prices plummeted early on Wednesday, with Brent falling below $40 a barrel, dragged down by estimates of a surge in U.S. inventories and the surge in coronavirus cases in the United States and Europe.
As of 9:44 a.m. EDT on Wednesday, before the EIA inventory report, WTI Crude was down by 5.66 percent at $37.33, and Brent Crude prices were dropping by 4.85 percent at $39.19, after the American Petroleum Institute (API) reported on Tuesday a bigger build than expected in crude oil inventories of 4.577 million barrels for the week ending October 23.
The API also reported a surprise build in gasoline inventories of 2.252 million barrels for the week ending October 23—compared to the previous week’s 1.622-million-barrel draw. Analysts had expected a 2.0-million-barrel draw for the week.
If confirmed by the EIA later on Wednesday, another gasoline build could point to further weakening in U.S. gasoline demand. For the previous week, the EIA reported the largest gasoline draw since June, even as refineries cut utilization rates and gasoline production for the week to October 16.
The bearish signals drove down oil prices lower late on Tuesday and into Wednesday, even though oil producers in the Gulf of Mexico continued to shut in production ahead of Hurricane Zeta. As of late on Tuesday, as much as 49.45 percent of the oil production in the U.S. Gulf of Mexico was shut-in, according to data from the Bureau of Safety and Environmental Enforcement (BSEE).
The market continues to focus on the bearish signs—rising U.S. inventories, increased oil supply from Libya, and a full-blown second COVID-19 wave in major developed economies threatening the economic and oil demand recovery.
“Following earlier gains on hurricane Zeta worries, the pendulum swing back against oil late yesterday after the API said inventories rose by 4.6 million barrels last week, the dollar rose on European virus and BP saying the pace of the recovery in oil demand remains uncertain,” John Hardy, Head of FX Strategy at Saxo Bank, said early on Wednesday.