Oil prices tumble 6% amid fading hopes for a smooth improvement in global demand

Oil futures plummeted on Thursday amid revived fears of a long-term demand shock.

West Texas Intermediate crude slid as much as 6.3%, to $38.72 per barrel. International standard Brent crude tumbled 5.4%, to $41.38, to its intraday low as of 11:05 a.m. ET. Both reached their lowest point since late June.

The world’s most-traded commodity stabilized near $40 per barrel through the summer after rallying in the second quarter. Thursday’s session wiped out that support for WTI and threatened to plunge Brent futures below the key threshold. Oil volatility rocketed higher after touching its lowest point in five months.

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Economic data released Thursday morning added to the oil market’s worries. US gross domestic product fell at an annualized rate of 33% in the second quarter, confirming the coronavirus drove the biggest economic slump on record. Jobless claims for the week ended Saturday increased for the second week straight. The uptick arrives after months of steady declines and suggests the US labor market may stabilize at a historically high level of unemployment until the virus threat subsides.

Industry experts are also preparing for oil demand to stay weak. Vopak, the world’s largest independent oil storage company, said in a Wednesday earnings call that it expects a slower demand recovery that lasts at least through 2020. CEO Eelco Hoekstra also warned that inventories were steadily increasing and threatening a storage crisis similar to the one that pushed prices below zero in April.

“If crude demand continues to show further signs of weakness, producers will have to look elsewhere for storage as Vopak’s capacity is fully rented out. Another historic oil price collapse is unlikely but oversupply risks will definitely keep crude heavy,Edward Moya, senior market analyst at OANDA, said in a note.

WTI futures traded at $39.76 per barrel as of 11:05 a.m. ET Thursday. Brent contracts traded at $42.47.

Credit: Business insider

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