(Bloomberg) — Oil plunged more than 7% in New York as the Federal Reserve forecast a long road to recovery for the U.S. economy and American crude inventories rose to a record.
Futures fell below $37 a barrel. Fed Chairman Jerome Powell said the pandemic could inflict long-lasting damage on the economy and signaled it would keep rates near zero possibly for years to come, weighing on equity markets globally. There were also fears a second wave of infections in the U.S. may derail its fragile recovery. Meanwhile, American crude inventories rose unexpectedly last week, while gasoline stockpiles also saw a surprise increase.
Global supply cuts and the easing of lockdowns in some countries have pushed prices higher after oil sank below zero in April. However, the demand recovery is uneven in Asia and there’s still a huge glut of oil stored both on land and at sea. In the U.S., a second wave of coronavirus infections has driven the country’s overall count past 2 million cases, with hospitalizations in Texas jumping.
“The oil-price rally has got ahead of fundamentals,” said Ehsan Khoman, head of MENA research at MUFG Bank. That’s “leaning us short oil in the immediate term.”
U.S. crude stockpiles rose by 5.72 million barrels last week to 538.1 million barrels, according to the Energy Information Administration. That’s the highest level in data compiled by Bloomberg since 1982.
In a more positive sign, data showed that oil demand in the United Kingdom has been steadily recovering in recent weeks. Despite that, there’s still a massive glut to be cleared globally, including more than 180 million barrels of crude stored at sea, according to Vortexa data.
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