Oil prices drop on demand worries as coronavirus cases rise

Oil prices fell more than 1% in early trade on Thursday as a spike in new coronavirus cases in China and the United States renewed fears that people would stay home and stall a recovery in fuel demand even as lockdowns ease. U.S. West Texas Intermediate (WTI) crude futures were down 1.6%, or 60 cents, at $37.36 a barrel at 0035 GMT, adding to a loss of 42 cents on Wednesday.

Brent crude futures fell 1.1%, or 45 cents, to $40.26 a barrel. The benchmark contract declined 25 cents on Wednesday.

Worries about fuel demand rose after a surge in coronavirus cases led Beijing to cancel flights and shut schools and several U.S. states, including Texas, Florida and California, reported sharp increases in new cases.

A rise in U.S. crude stockpiles to a record high for a second week in a row also weighed on sentiment, even though U.S. government data showed inventories of gasoline and distillate, which include diesel and heating oil, fell.

"People are concerned about the coronavirus resurging in China and crude stockpiles rising," said Lachlan Shaw, head of commodity research at National Australia Bank.

While prices dipped, they remained in the $35 to $40 band they have been trading in so far in June, with the Organization of the Petroleum Exporting Countries (OPEC) and other major producers mostly sticking to promised supply cuts, U.S. shale producers holding back output, and fuel demand gradually improving.

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"It`s going to be up and down, rangebound for the next little while on a balance of OPEC and ally cuts against the massive inventory build and demand recovery and potential restarts of production in the United States," Shaw said.