Oil prices drop by 4% due to risk of less demand and oversupply

One thing we know is that there should be a right balance in the market when it comes to anything which includes raw materials. One hot commodity from a long time has been crude oil and fuel that has been supplied by the middle eastern countries to all over the world. Since last few years, we are seeing disruptions in that chain of fuel supplies due to various reasons. Due to the Coronavirus pandemic, we saw that many oil factories stopped supplying fuel to markets because there was no demand due to lockdown.

Now that countries have started to re-open their economies, we see that fuel supply is also getting back to normal. But there is a problem here which is of oversupply due to lesser demand as compared to pre-pandemic era. According to reports, the fuel demand has not yet come anywhere close to normal and countries are buying much less fuel compared to earlier. However, the oil refineries are supplying fuel in abundance meaning that the risk of oversupplying is very much there. Due to that reason, the prices of oil have dropped by 4% citing the same.

The reason why oil prices dropped so much in a single day is also that Libya’s oil refineries restarted their production on Thursday. Thus, West Texas Intermediate contracts fell by 4% while Brent Crude Oil also went down by 3.1%. According to an expert, oil prices are expected to fall further as they mention that “Oil seems ripe for a pullback here and if the demand outlook shows further signs of faltering, WTI could settle back towards the mid-$30s,”

It is also said that oil demand does not show any signs of returning to normalcy since many parts of the US are starting to put a lockdown in place due to rising Coronavirus cases.