Crude oil futures slipped lower early Wednesday as data showed a big increase in weekly U.S. crude supplies, and after the OECD warned that a second wave of the coronavirus could lead to a more severe economic contraction.
Commodity market participants also will watch for guidance from the Federal Reserve’s policy statements and forecasts later Wednesday which could provide more guidance on the economic outlook for the U.S. and therefore the prospects for oil demand in the region.
Late Tuesday, the American Petroleum Institute reported that U.S. crude supplies rose by 8.4 million barrels for the week ended June 5, according to sources. The API data also reportedly showed gasoline stockpiles fell by 2.9 million barrels, while distillate inventories climbed by 4.3 million barrels. Crude stocks at the Cushing, Okla., storage hub, meanwhile, fell by 2.3 million barrels for the week, the data showed.
“While traders and analysts expected US oil storages would be modestly relieved last week, indications from the American Petroleum Institute show that stocks built quite a lot,” wrote Bjornar Tonhaugen, Rystad Energy’s head of oil markets.
“Taken the development, what else can you do as a trader but rush to sell and depress the price. And then of course, when on the safer side, scratch your head and try to digest what happened,” he said.
West Texas Intermediate crude for July delivery, the U.S. benchmark, was off $1.06, or 2.8%, at $37.86 a barrel on the New York Mercantile Exchange, after rising 2% in the previous session.
Global benchmark Brent oil for August delivery gave up 94 cents, or 2.3%, to reach $40.24 a barrel on ICE Futures Europe, following a 0.9% decline on Tuesday.
The API report came ahead of the more closely followed update from the U.S. Energy Information Administration, which will be released at 10:30 a.m. Eastern Time. The EIA data are expected to show crude inventories declined by 3.2 million barrels last week, according to analysts polled by S&P Global Platts.
Meanwhile, the Organization for Economic Cooperation and Development released its twice-a-year economic outlook on Wednesday, presenting two grim scenarios. The first forecast assumes that cases of COVID-19 continue to recede, which would lead to global economic contraction of about 6% and another where a second wave of the contagion erupts later in the year, which could result in a pullback of 7.6%, the Paris-based research body said.
The oil market has been reacting to recovering demand as business activity restarts with the coronavirus pandemic receding in most developed countries, as well as the newly extended pact between the Organization of the Petroleum Exporting Countries and its allies to cut production by nearly 10 million barrels.
Investors remain worried though about oversupply from non-OPEC members as well as some key producers in the Middle East, including Saudi Arabia, who may end their voluntary extra output cuts at the end of June, with U.S. producers expected to reverse output cuts as prices rise.
On top of that, the Fed is due to publish its monetary-policy decision and forecasts at 2 p.m. Eastern, which will be followed by a news conference at 2.30 p.m., where Chairman Jerome Powell could clarify the central bank’s economic outlook, a possible catalyst for crude oil.
Also on investors’ radar may be a report from Australian think tank the Institute for Economics and Peace, which cautioned that the effects of the pandemic may “result in the collapse of the shale-oil industry in the U.S., unless oil prices return to their prior levels.” The institute also said that low prices will affect not just North American producers but political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran.