Oil declined in New York as an increase in American crude stockpiles to a record high raised fresh concerns about excess supply, while the Federal Reserve forecast a long road to recovery for the US economy.
Futures lost 3.2% to drop below $39 a barrel, erasing all of the gains from the previous session. US crude inventories unexpectedly rose last week, even as oil production fell, while gasoline stockpiles also saw a surprise expansion. Fed Chairman Jerome Powell said the pandemic could inflict longer-lasting damage on the economy and the central bank signaled it would keep rates near zero possibly for years to come.
Global production cuts and the easing of lockdowns in some countries has pushed prices higher after oil plunged below zero in April. However, the recovery is expected to be fragile and uneven, and there are concerns US producers may pump more with crude above $30 a barrel, adding to a glut.
“Prices may have run ahead of themselves over the last month or so,” Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore, said by phone. “As we approach the second half of the year, there will be some rethinking about how far this rally can continue given the high volume of stockpiles that still exists.”
US crude stockpiles rose by 5.72 million barrels last week to 538.1 million barrels, according to the Energy Information Administration. That’s the highest level in data compiled by Bloomberg since 1982. Still, oil production fell for a 10th week, while supplies at the key storage hub of Cushing, Oklahoma, dropped below 50 million barrels.
Meanwhile, in a positive sign, a glut of benchmark North Sea oil that’s been sitting on ocean-going tankers for weeks is starting to diminish. Millions of barrels of the region’s unwanted crude have been stashed on vessels since the coronavirus caused a demand collapse, but now the volumes are starting to shrink sharply, data compiled by Bloomberg show.
