Oil dropped in Asia as fears of a resurgence of coronavirus in China cast fresh doubt on the demand outlook, and a report pointed to a further swelling in US crude stockpiles.
Futures in New York fell as much as 1.8%, after ending Wednesday’s session up 3.4%. Beijing said Tuesday it was shutting down schools because of the risk of a new wave of infections. A renewed outbreak would jeopardize the recovery in oil prices over the last two months — spurred by record output cuts and signs that demand is slowly coming back as lockdowns are lifted.
The American Petroleum Institute reported US crude stockpiles rose by 3.86 million barrels in the past week, according to people familiar. That follows US government data last week that showed inventories at a record-high 538.1 million barrels, despite American production having fallen by at least 2 million barrels a day since mid-March.
Global oil demand will rebound next year as the world emerges from coronavirus lockdowns, but recovering to pre-crisis levels may take a couple of years, the International Energy Agency said.
Top producers continue to curb their activity to counter the supply glut brought on by the pandemic. Saudi Arabia’s oil exports to the US are set to plunge to their lowest levels in 35 years this month, while three OPEC members identified by their peers as failing to bring production down to target levels in May appear to have begun improving their compliance in June.
The market had been lifted earlier by a record jump in US retail sales and a report that the Trump administration is preparing a nearly $1 trillion infrastructure proposal to help revive the world’s biggest economy. The S&P 500 rallied, with energy, health care and materials leading all 11 industry sectors higher.
Technical indicators suggest oil’s rally may fade. Brent crude’s 14-day Relative Strength Index is nearing 70 once again, a level that signals it’s overbought and could be due for a retreat.