Oil prices hit by record U.S. crude inventories, bearish Fed

[June 11, 2020]  By Shadia Nasralla

LONDON (Reuters) - Oil prices fell on Thursday, hit by another record build-up in U.S. crude inventories and the U.S. Federal Reserve's projections that the world's biggest economy would shrink 6.5% this year.

Brent crude <LCOc1> futures erased Wednesday's gains, falling 4%, or $1.65, to $40.08 a barrel by 1156 GMT. U.S. West Texas Intermediate (WTI) crude <CLc1> dropped 4.7%, or $1.87, to $37.73 a barrel.

Both benchmarks are set for their worst daily drop in two weeks.

"Prices are once again under pressure as concerns over the pace of the demand recovery intensified," said Rystad Energy’s oil markets analyst Paola Rodriguez Masiu.

U.S. crude inventories rose unexpectedly by 5.7 million barrels in the week to June 5 to 538.1 million barrels - a record - as imports were boosted by the arrival of supplies bought by refiners when Saudi Arabia flooded the market in March and April, Energy Information Administration (EIA) data showed. [EIA/S]

It also showed gasoline stockpiles grew more than expected to 258.7 million barrels. Distillate stockpiles, which include diesel and heating oil, rose by 1.6 million barrels, although the increase was smaller than in previous weeks.

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant

Adding to the pressure on prices, the U.S. Federal Reserve said U.S. unemployment was set to reach 9.3% at the end of 2020 and it would take years to fall back, while interest rates were expected to stay near zero at least through next year.

Total U.S. coronavirus cases topped 2 million on Wednesday, with new infections rising slightly after five weeks of declines, according to a Reuters analysis.

"No significant price relief is anticipated in 2020 but next year promises to become tighter due to improving consumption," said PVM oil analyst Tmas Varga.

"For this forecast to prove accurate, however, assistance is required from the world’s swing producers. OPEC+ needs to stick to the April deal and keep its agreed 5.8 mbpd output restraints below the October 2018 baseline all through next year."

(Additional reporting by Sonali Paul in MELBOURNE and Roslan Khasawneh in SINGAPORE; Editing by Edmund Blair and Elaine Hardcastle)

[© 2020 Thomson Reuters. All rights reserved.]

Copyright 2020 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.