Brent crude dropped 56 cents, or 1.9%, to $29.42 a barrel by 0855 GMT, having risen 1.2% on Tuesday.
West Texas Intermediate crude futures fell 23 cents, or 0.9%, to $25.55 after gaining 6.8% in the previous session.
“Fears are running rife that easing lockdown measures will trigger a second wave of coronavirus infections,” said Stephen Brennoc at oil brokerage PVM.
U.S. infectious disease expert Anthony Fauci on Tuesday told Congress that easing coronavirus lockdowns could set off new outbreaks of the COVID-19 disease that has killed 80,000 Americans and badly damaged the world’s biggest economy and oil consumer.
New outbreaks have been reported in South Korea and China, where the health crisis started before spreading across the globe, prompting governments to lock down billions of people, devastating economies and demand for oil.
The U.S. Energy Information Administration (EIA) now expects world oil demand to fall by 8.1 million barrels per day (bpd) this year to 92.6 million bpd, compared with a previous forecast for a drop of 5.2 million bpd.
The agency also expects U.S. output to fall by 540,000 bpd, against a previous forecast of 470,000 bpd. It expects global output of 11.7 million bpd this year and 10.9 million bpd in 2021.
On the supply side, OPEC+ is looking to maintain existing cuts beyond June, when it meets next in Vienna, sources told Reuters.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia – a group known as OPEC+ – agreed to cut output by 9.7 million bpd in May and June and to scale back cuts to 7.7 million bpd for the rest of the year.
Saudi Arabia’s cabinet has urged OPEC+ countries to reduce output further to restore balance in global crude markets, the country’s state news agency reported early on Wednesday.
Riyadh said it would add to planned cuts by reducing production by a further 1 million bpd next month, bringing output down to 7.5 million bpd..
“Suffice to say, the tug-of-war between OPEC-led cuts and virus anxieties will limit upside price potential,” PVM’s Brennoc said.
In the United States, crude oil inventories rose by 7.6 million barrels last week to 526.2 million barrels, against analyst expectations for an increase of 4.1 million barrels, the American Petroleum Institute (API) said on Tuesday.
Still, stocks of crude at the Cushing delivery hub in Oklahoma fell by 2.3 million barrels, API said. If confirmed by official data, that would be the first drawdown since February, ING Economics said.
“Concerns over hitting storage capacity have eased, as we see demand gradually recovering, along with supply cuts hitting the market,” ING said in a note, pointing to the decline in Cushing stocks.
Official EIA storage data is due later on Wednesday.