Oil prices fell by around 4% on Thursday, as surging coronavirus infections around the world threatened to jeopardise a recovery in fuel demand just as major oil producers are set to raise output.

U.S. West Texas Intermediate (WTI) crude futures were down $1.52, or 3.7%, at $39.75 a barrel at 1401 GMT.

The most-active Brent crude contract for October fell $1.35, or 3.1%, to $42.74 a barrel, while September Brent, which expires on Friday, fell $1.34 to $42.41 a barrel.

Both benchmark contracts had risen on Wednesday after the U.S. Energy Information Administration (EIA) reported the largest one-week fall in crude stocks since December.

In a sign of the devastating impact of the coronavirus on the United States, the world’s biggest oil consumer, the country’s economy contracted at its steepest pace since the Great Depression in the second quarter.

U.S. gross domestic product collapsed at a 32.9% annualised rate, the deepest decline in output since the government started keeping records in 1947, the Commerce Department said on Thursday.

Deaths from Covid-19 have now topped 150,000 in the United States, while Brazil, with the world’s second-worst outbreak, set daily records of confirmed cases and deaths. New infections in Australia hit a record on Thursday.

“The recent resurgence of the coronavirus is an ominous sign that the upside is limited in the immediate future,” Tamas Varga of oil brokerage PVM said.

The potential threat to a recovery in oil demand comes as Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are set to step up output in August, adding about 1.5 million barrels per day to global supply.

“The easing OPEC+ supply restrictions combined with the return of some U.S. production may test the resilience of market sentiment in the coming weeks,” Stephen Innes, chief global market strategist at AxiCorp said.

Total and Royal Dutch Shell reported small profits in the second quarter as their oil trading businesses shielded them from the full force of the pandemic-induced demand loss.

Reuters