Leading expectations that demand will decline such as rising coronavirus infections in the United States and Europe, re-lockdowns, and the unstable economy dropped Brent oil to a four-month low on Wednesday.
US crude inventories, which impacted the market, increased more than expected last week, with output at a record high.
The increase in oil production has resulted in an unexpected buildup of crude oil and, given the recurring lockdowns, the oil market must be prepared for worse news.
Brent futures fell $2.33, or 5.7%, to $38.87 a barrel by 1710 GMT, while West Texas Intermediate (WTI) crude fell $2.45, or 6.2%, to $37.12.
Brent suffered the lowest close and largest daily percentage loss since June 12. WTI recorded its lowest close since October 2 and its biggest daily percentage drop since September 8.
All US stock indices are running low. The safe-haven US Dollar Index DXY rose 0.5% on the likelihood of a national lockdown in Germany and France to combat the pandemic. The strong dollar drives traders to invest in crude oil, making oil more expensive for foreign currency holders.
The United States, Russia, France, and other countries have recorded record numbers of COVID-19 cases in recent days, and European governments have imposed new restrictions to try to contain rapidly growing epidemics.
Crude oil prices are also negatively affected by the waning of prospects for a quick deal for a new US incentive, and the increase in Libyan oil production.
On Tuesday, the US President said that a coronavirus economic aid package decision is after next week’s elections.
COVID-19 measures are still the key element of oil price formation, with US selection and incentives taking the second place. Libya oversupply and US crude oil stock inventory issues follow.
Libya is expected to increase its production to 1 million barrels a day in the coming weeks.
About half of US offshore Gulf of Mexico production closed ahead of Hurricane Zeta, which is expected to reach the Gulf Coast on Wednesday.