Crude oil prices fell to three-month lows in early trading on Friday in New York, spooked by signs of a growing imbalance between supply and demand as the world economy struggles to return to pre-pandemic levels of activity.
By 9:10 AM ET (1310 GMT), U.S. crude futures were down 1.3% at $36.81 a barrel, on course for a loss of over 7% for the week. It’ll be the first time since the depths of the pandemic’s first wave in March that prices have fallen for two weeks in a row.
The international benchmark Brent was down 1.2% at $39.57, in a clear breach of the $40 level that has been the lower end of its trading range all through the summer.
Gasoline RBOB Futures fell 1.7% to $1.0790 a gallon.
“This price drop is a bearish correction that has been on the making for a while,” said Rystad Energy analyst Paola Rodriguez-Masiu in e-mailed comments. “The market had been too optimistic on draws and demand recovery expectations.”
The latest leg down comes in the wake of confirmation from the U.S. government that crude stockpiles snapped a streak of six straight weekly declines. Inventories rose 2.03 million barrels last week, in contrast to expectations of a draw of 1.34 million barrels.
More worryingly, the Energy Information Administration’s report showed U.S. supplies of refined products to the domestic market were down 11% last week from their average of the last five years.
The mood has further darkened on Friday against a backdrop of fresh anecdotal evidence of looming oversupply. Bloomberg reported that major traders such as Trafigura, Royal Dutch Shell (LON:RDSa), Vitol and others had all resorted to booking tankers to use as floating storage, a tactic often used to avoid dumping sport cargoes at depressed levels.
Later Friday, Baker Hughes will publish its weekly count of active oil rigs in the U.S. Drilling levels appear to have bottomed out over the last three months, but may face another leg down if spot prices continue to slide.