By Barani Krishnan
Investing.com - The benchmarked price of U.S. oil settled beneath $40 a barrel on Thursday, snapping a support level critical to longs in the market, as traders brushed away a big crude draw reported by the government on Wednesday to focus on demand worries sparked by Covid-19.
New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled down $1.35, or 3.3%, at $39.92 per barrel. It was WTI’s first settlement below $40 since July 9 and marked its biggest slide since June 11.
London-traded Brent, the bellwether for global crude prices, closed the New York session down 50 cents, or 1.1%, at $43.25.
Just on Wednesday, WTI rose 0.6% while Brent gained 1.2% after the Energy Information Administration reported that U.S. crude inventories declined 10.6 million barrels during the week ended July 24, confounding traders who were expecting a build of 357,000 barrels.
But all that bullish sentiment evaporated by Thursday as most commodities, including safe-haven gold, fell on data showing the U.S. economy shrank almost 33% in the second quarter — a plunge not seen since the Great Depression.
U.S. weekly unemployment claims, also released Thursday, showed some 1.43 million Americans filing for first-time unemployment benefits last week. Continuing weekly claims show at least 17 million Americans remaining out of jobs since the coronavirus first forced tens of thousands of businesses in the country to shutter in March.
Federal Reserve Chairman Jay Powell warned on Wednesday that the pace of economic recovery seen since the first business reopenings in May has slowed. He also said some jobs lost to the pandemic may never return, adding that those laid off by eateries and places of public entertainment such as restaurants and bars just did not have enough jobs to return to.
“The bears … think that demand is not going to come back as strongly as expected,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina.
“They are watching the margins and physical markets. They are watching the lack of Chinese crude buying. They look at the picture on the physical side and don’t see the stock draws that many of the banks and consultants see. They talk about a resurgence of COVID in not only the US, but the rest of the world and think that there may be another large shutdown coming. They think that supply is going to come back and demand won't.”
On the Covid-19 front, the United States has recorded more than 4.4 million infections, according to Johns Hopkins University. The nation’s death toll from the pandemic, meanwhile, has crossed 150,000, accounting for more than one-fifth of global fatalities from the virus.