The long-awaited economic recovery the oil industry has waited for is beginning to deteriorate as the United States suffers a rapid resurgence of coronavirus infections and the rapid buildup of inventories well ahead of demand despite production cuts. Oil prices ended Thursday with some substantial gains, bringing some relief amid continued uncertainty.
Last week has been pretty rough for big oil, with prices dropping steadily for two days straight. From Monday to Wednesday, West Texas Intermediate
Thursday bore some relief for both oil prices and oil stocks. WTI bounced from $38 to $39, while Brent jumped from $40 to $41. Exxon made a modest hop from $44 to $45 by the end of trading on Wednesday, while Chevron managed to climb back to $89.
Despite ending higher on Thursday, the concerns that caused the initial drop to occur in the first place remain, as does a great deal of uncertainty. The initial cause for concern was the Energy Information Administration's weekly report, which showed a significant increase in domestic oil stocks. Experts initially predicted a 100,000 barrel decrease in crude inventories; the weekly EIA report, however, showed a drastic opposite, with an increase of 1.4 million barrels. This was the third such increase over the last three weeks. The total crude stuck in the United States is about 540.7 million barrels according to the report, a record high.
While demand is finally showing some indications of recovery, the domestic supply is rapidly outpacing it, a matter made worse by the resurgence in coronavirus infections in the United States. The spike in infections has many worried about a potential likewise drop in oil demand, mirroring the initial outbreak of the pandemic several months ago. Already, many states are delaying reopening, and many companies are delaying re-opening locations or are even re-closing stores. Making matters worse is a recent report by the International Monetary Fund showing a dourer global economic situation than previously thought.
Some experts seem to think that, while the coronavirus resurgence will likely cause some trouble for the oil industry, the rapidly growing domestic stock will produce the most trouble. The Economic Intelligence Unit hinted at this in a statement to MarketWatch, saying that "rising U.S. stockpiles pointed to slowing GDP growth and a potential supply glut."