Oil prices slumped on Thursday, dragged down by another record build-up in U.S. crude inventories and the U.S. Federal Reserve’s projections that the world’s biggest economy would shrink 6.5% this year.

Brent crude (LCOc1) futures erased Wednesday's gains, falling 6.6%, or $2.74, to $38.99 a barrel by 1342 GMT. U.S. West Texas Intermediate (WTI) crude (CLc1) dropped 7.6%, or $3.02, to $36.58 a barrel.

Both benchmarks are set for their worst daily drops since April 21 and 27, respectively.

“Prices are once again under pressure as concerns over the pace of the demand recovery intensified,” said Rystad Energy’s oil markets analyst Paola Rodriguez Masiu.

U.S. crude inventories rose unexpectedly by 5.7 million barrels in the week to June 5 to 538.1 million barrels - a record - as imports were boosted by the arrival of supplies bought by refiners when Saudi Arabia flooded the market in March and April, Energy Information Administration (EIA) data showed. [EIA/S]

It also showed gasoline stockpiles grew more than expected to 258.7 million barrels. Distillate stockpiles, which include diesel and heating oil, rose by 1.6 million barrels, although the increase was smaller than in previous weeks.

Adding to the pressure on prices, the U.S. Federal Reserve said U.S. unemployment was set to reach 9.3% at the end of 2020 and it would take years to fall back, while interest rates were expected to stay near zero at least through next year.

Total U.S. coronavirus cases topped 2 million on Wednesday, with new infections rising slightly after five weeks of declines, according to a Reuters analysis.

“No significant price relief is anticipated in 2020 but next year promises to become tighter due to improving consumption,” said PVM oil analyst Tmas Varga.

“For this forecast to prove accurate, however, assistance is required from the world’s swing producers. OPEC+ needs to stick to the April deal and keep its agreed 5.8 mbpd output restraints below the October 2018 baseline all through next year.”

Reuters