(Bloomberg) -- Oil slumped 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 lost 3.5% to trade near $38 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 new 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, a surplus of benchmark North Sea oil that’s been sitting in ocean-going tankers for weeks is starting to diminish. Millions of barrels of the region’s unwanted crude have been stashed on vessels since the coronavirus wiped out demand, but now volumes are starting to shrink sharply, data compiled by Bloomberg show. Despite that, there’s still about 180 million barrels of oil stored at sea globally, according to Vortexa data.
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