Oil prices sank more than 5% on Wednesday, as stocks, index futures, and crude ETFs tumbled.
Investors scrambled for safety amid spiking coronavirus infections across the globe that could be leading to fresh lockdowns, generating concerns that the fragile economic recovery will be disrupted.
U.S. West Texas Intermediate (WTI) crude plummeted over $2.40, or roughly 6%, to $36.97 per barrel, while global benchmark Brent futures dropped $2.12, or 5.15%, to $39.08 a barrel, targeting both benchmarks for their lowest closes since Oct. 2, as they test the lows of what appears to be a triple bottom formation.
Crude price declines echoed downturns in other markets, such as U.S. stock indexes, agricultural futures, and precious metals, which were all lower Wednesday.
Crude oil ETFs are under pressure from the falling futures markets Tuesday. The United States Oil Fund (USO) declined 5.01% while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is down 4.45% as of just after 2PM EST.
Heightened Covid Concerns
Meanwhile, investors scrambled to safety, driving the U.S. dollar to gain 0.5% amid concerns of national lockdowns in Germany and France, which may be needed to battle the pandemic. The more expensive U.S. dollar in turn drives oil to be more costly for holders of foreign currencies, which traders claimed may have affected crude prices. Traders also noted the stalemate in reaching a fiscal stimulus deal and increasing output from Libya.
U.S. coronavirus cases have surged by a record daily average of 71,832 over the past week, according to data compiled by Johns Hopkins University. Hospitalizations due to Covid-19 have jumped 5% or more in three dozen states, according to data from the Covid Tracking Project, and cases are exploding across Europe as well.
While there was a respite to the coronavirus pandemic that has rocked the globe since late last year, the recent surge in Covid-19 infections has spurred some countries to reinstitute more stringent social distancing measures. In Germany, for example, Chancellor Angela Merkel called on Wednesday for a limited lockdown. Meanwhile, Reuters reported that France would soon issue a stay-at-home order. In the U.S., Illinois powers have demanded Chicago shutter indoor dining as well.
U.S. crude stockpiles climbed more than projected last week as well, as production spiked in a record build, according to the U.S. Energy Information Administration.
“Crude oil domestic production number is up a crazy amount – why would producers do that? That’s not good, as it implies we will have a lot of crude oil for a long time coming out of the ground,” said Robert Yawger, director of energy futures at Mizuho in New York.
For savvy investors looking to short oil over supply concerns, the ProShares UltraShort Bloomberg Crude Oil (SCO) could be worth exploring.
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