The crude oil market was depressed further on Thursday as investors became wary of uncertainties surrounding the environment.
The market has been faced with different issues lately arising from growing inventories, coronavirus induced demand drop, and fresh rounds of disputes between the US and China.
Yesterday, these factors combined to weaken the price of the Brent crude futures by 95 cents or 2.14 percent to $43.34 per barrel. It also softened the US West Texas Intermediate (WTI) crude by 77 cents or 1.84 percent to $41.13 per barrel.
The coronavirus pandemic is causing a deepening demand fallout from the U.S. to Asia.
In America, the government is facing a looming deadline to pass another round of virus relief just as unemployment claims rose for the first time since March. In South Korea, data showed the nation’s economy sliding into a recession.
These all point out that demand will drop as many will not be able to afford to be on the road, something that will affect demand for crude.
Crude futures have been caught in a tight range over the past two months as reports of government stimulus and vaccine progress failed to overcome prospects for weakening demand amid a resurgent pandemic.
In the US, virus cases continue to surge and government data this week showed fuel demand weakening with measures to contain the pandemic keeping drivers off the road. Meanwhile, crude inventories also rose.
The US Energy Information Administration (EIA) said on Wednesday that the sharp rise in coronavirus cases has started to hit US consumption as crude inventories rose by 4.9 million barrels in the week to July 17 to 536.6 million barrels.
This is coming at a time when the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) are close to unleashing crude back onto the market.
Adding to the uncertainty in the market, US-Chinese relations deteriorated further as Washington gave Beijing 72 hours to close its consulate in Houston amid accusations of spying.
The Chinese Foreign Ministry said the move had severely harmed relations and that China would be forced to respond.
Even the benefit of a weaker Dollar did nothing to help the price of the commodity. The US Dollar on Thursday was trading at its lowest against a basket of currencies since September 2018.
In a normal circumstance, a weaker dollar usually spurs buying of dollar-priced commodities, like oil, because they become cheaper for holders of other currencies but that was not the case at the market.