Oil slips below $40 a barrel on record US crude inventories, Covid-19 fears

Oil slipped below $40 a barrel on Thursday after a more than 5 per cent fall the previous session, as record-high US crude inventories and a resurgence in coronavirus cases cast doubt on a recovery in fuel demand. US crude stocks rose 1.4 million barrels, the Energy Information Administration said on Wednesday. This hit crude prices, although other details the EIA reported such as a fall in gasoline stocks as demand rose, lent limited support.

"The report was another nail in the bulls' coffin although it was not as depressing as the price fall suggests," said Tamas Varga of oil broker PVM. "On the positive side, oil consumption is healthy."

Brent crude fell 54 cents, or 1.3 per cent, to $39.77 at 1150 GMT, and traded as low as $39.47. The global benchmark dropped 5.4 per cent on Wednesday. US West Texas Intermediate (WTI) crude declined 56 cents, or 1.5 per cent, to $37.45. Oil and equities were also pressured by a rise in coronavirus cases. New infections have surged in some US states and Australia posted its biggest daily rise in cases in two months.

"Demand, which was expected to rise as Covid-19 subsides, is again under threat with infections rising in key markets," said Bjornar Tonhaugen of Rystad Energy.

"All eyes are on how governments will react to the new surge of the pandemic."

Also weighing on demand prospects was the International Monetary Fund's prediction on Wednesday of a deeper global recession than previously thought. A record supply cut by the Organization of the Petroleum Exporting Countries and allies has supported the oil market, which is much stronger compared to April, when Brent hit a 21-year low below $16 a barrel and US crude went negative.

Investors are waiting to see if the producers, known as OPEC+, extend their record cut beyond July.