Oil prices slide below $40 after US stockpiles hit all-time high

Oil prices fell again on Thursday, with Brent crude slipping below the psychological $40 mark as US stockpiles hit an all-time high and the Federal Reserve warns that it could take years before the economy fully recovers.

Brent crude is down 5% at $39.25 a barrel on Thursday, with the US West Texas Intermediate (WTI) down 7% at $36.74 a barrel at the time of publication.

Brent crude falls into key support zone

Brent has declined back into the $39.95 - $40.28 support zone this morning, following sharp gains yesterday. The build in US inventories has not done Brent any favours, with continued builds in stockpiles highlighting the continued oversupply that exists, according to Josh Mahony, senior market analyst at IG.

‘Nevertheless, from a technical perspective, we are at a key crossroad for Brent,’ Mahony said. ‘A break below trendline and horizontal support would point towards a potential capitulation for crude as we unravel some of the gains seen over recent months.’

‘However, the uptrend does remain in play, and another leg higher is still a possibility if the price remains above this key support zone,’ he added.

US Federal Reserve warns of ‘long road’ to recovery

Oil prices and US stocks were also dragged lower by Federal Reserve Chairman Jerome Powell’s dim economic outlook, with the head of America’s central bank conceding that the US economy faces a ‘long road’ to recovery.

The Fed has pledged to continue to support the US economy and said that it will leave interest rates near zero for the foreseeable future.

The S&P 500 and Dow Jones Industrial Average indexes both opened lower on Thursday, down more than 2%, with the pairs earlier gains completely eroded by the Fed’s grim outlook.

On Wednesday, the Organisation for Economic Co-operation and Development (OECD) said that the global economy faces a ‘tightrope walk to recovery’.

With little prospect of a vaccine becoming widely available this year, and faced with unprecedented uncertainty, the OECD presented two equally likely scenarios – one in which the virus is brought under control, and one in which a second global outbreak hits before the end of 2020.

‘If a second outbreak occurs triggering a return to lockdowns, world economic output is forecast to plummet 7.6% this year, before climbing back 2.8% in 2021,’ the OECD said.

‘At its peak, unemployment in the OECD economies would be more than double the rate prior to the outbreaks, with little recovery in jobs next year.’

‘If a second wave of infections is avoided, global economic activity is expected to fall by 6% in 2020 and OECD unemployment to climb to 9.2% from 5.4% in 2019,’ the OECD added.

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3. Choose your position size

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