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Oil prices faced a dip recently by almost USD 3 per barrel. The reason that can be attributed to the price decline is the unforeseen surge in oil storage across the U.S. Crude oil inventories.

Oil storage bounced on the back of fear agitated by the jigging cases of COVID-19. The increase in the cases has cautioned the oil-producing organizations as the re-emergence could lacerate the demand from China, the most significant importer of oil in the world. Therefore, the setting demand could sink the revenues and cause a pained dent in the pockets of oil traders.

The Dismal Trend in the Oil Prices

Brent crude futures plunged significantly and settled at USD 92.65 per barrel, a dip of USD 2.71 per barrel, signifying a -2.8 per cent fall. Similarly, U.S. West Texas Intermediate (WTI) crude futures witnessed a fall of USD 3.08, a drop of 3.5 per cent. The U.S. benchmark slipped by approximately 3 per cent. Hence quite evidently, the trends and trajectory of oil prices were a bit doomed.

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The U.S. Energy Information Administration data displayed how massively the oil build-up has been augmenting in recent times. Compared to the last week, U.S. oil production jumped to USD 440.8 million. The hike in production is as higher as 12.1 million barrels per day.

Moreover, the market analysts had anticipated a significant distension of the stockpile by around 1.4 million barrels.

As per John Kilduff, a partner at Again Capital LLC, New York, the report has seen a mixed trend with a slightly bearish slope. The downward roll could be understood because of the build-up in domestic oil production. The obvious demand-supply inverse equation could understandably be pinned for the slump in prices.

The U.S. gasoline stocks slumped to 205.7 million per day, a dip of 90,000 barrels in the week. As opposed to what the analysts in a particular poll had expected, the drop was not as low corresponding to the expected 1.1 million barrels.

Distillate stockpiles tumbled by around 500,000 barrels, which was marginally smaller than the expected decrease in prices. Distillate stockpiles include heating oil and diesel.

Jim Ritterbusch of Ritterbusch and Associates considers the uncertain Chinese economic growth trajectory to contribute to the downside pressure. However, it also sees a tinge of hope in the adjustment in global oil demands.

COVID-19 Continues to Haunt the Oil and Gas Industry

Contrary to the hopes of witnessing a bit of laxity concerning the COVID-19 lockdown in China, the slippage of the strictness was not as appealing and delightful. The last week brought some home hope in terms of having relaxed COVID-19 policies. However, this week the dismal waves came in the form of health officials who don’t seem to be backing off from the current lockdown rules in China, citing a “dynamic-clearing” approach against novel infections.

The decision seems in line with the rising COVID-19 cases in Guangzhou, a global manufacturing centre, among other Chinese cities. A gazillion people had to get tested against the virus.

As per the managing partner at SPI Asset Management, Stephen Innes, the recession has come to doom the fate along with the bereaving dynamics of the Chinese lockdown staying intact and the surge in the U.S. oil inventories. The demand-bud in the U.S., in that case, doesn’t seem to bloom soon.

The jolt of recession bolts the buyer’s capacity as it makes the oil prices touch new highs. In this regard, it would make it difficult to buy crude oil and disrupt its prices.

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According to Procurement Resource, the debilitated demand can be attributed to the rising oil storage, stuttering demand, and prominent recession effect. The conditions are supposedly the principal dooming factor for the dip in oil prices.