Crude oil and related ETFs are selling off sharply on Thursday, following a long period of consolidation, amid an explosion in coronavirus infections around the world that is threatening to damage a recovery in fuel demand, as key oil producers are scheduled to increase output.
U.S. West Texas Intermediate (WTI) crude futures dropped precipitously, and are were down nearly 5% on the day, before recovering some, to trade below $40 a barrel. Crude had reached as low as $38.72 before moving off its worst lows of the session.
The United States Oil Fund LP (USO) slumped 2.47% while the Energy Select Sector SPDR ETF (XLE) fell more than 3.5% Thursday.
Both WTI and Brent crude contract rallied on Wednesday after the U.S. Energy Information Administration (EIA) reported the largest one-week fall in crude stocks since December.
“The recent resurgence of the coronavirus is an ominous sign that the upside is limited in the immediate future,” Tamas Varga of oil brokerage PVM said.
The possible decline in the demand rebound comes arrives as Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are scheduled to increase output in August, adding about 1.5 million barrels per day to global supply.
“The easing OPEC+ supply restrictions combined with the return of some U.S. production may test the resilience of market sentiment in the coming weeks,” Stephen Innes, chief global market strategist at AxiCorp said.
U.S. President Donald Trump touted America’s energy independence and vowed that the oil industry will never again be reliant on hostile foreign suppliers in a speech in Midland, Texas.
Meanwhile, President Trump is looking to decrease dependence on foreign oil and encourage production for U.S. producers.
“We’re also here to send a clear message to the zealots, radicals, and extremists trying to shut down your industry and to make America subservient to foreign producers. That won’t happen to this nation again,” President Trump said in the speech that was something of a campaign speech and also an attempt to lift spirits for the Permian basin producers and workers who have seen the worst of the oil price and demand crash in recent months.
“We will never again be reliant on hostile foreign suppliers. We will defend your jobs, and we will defend the Lone Star State,” President Trump said, announcing some immediate actions to boost American energy.
President Trump also showed gratitude to Saudi Arabia, Russia, and OPEC+ for uniting to slash 9.7 million bpd of their combined production in May and June and for stabilizing oil prices.
“This action stabilized world oil prices that had been in a freefall, and saved millions of energy jobs, and frankly, it saved your industry. Four months ago, people were very, very concerned about that industry. And now it’s just going to be a question of how fast will you put people on,” President Trump said.
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