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WASHINGTON (DTN) -- Nearest delivery oil futures on New York Mercantile Exchange and Brent crude on Intercontinental Exchange shifted lower in pre-inventory trade Wednesday, with the U.S. crude benchmark falling below $38 per barrel (bbl) after industry data reported large builds in domestic crude and distillate fuels supplies, while China's weak factory gate prices suggest persistent weakness in global demand that coincides with the latest projections indicating the coronavirus recession has led to the worst economic contraction in over a hundred years.

Organization for Economic Cooperation and Development projects global economic growth could fall by as much as 7.5% this year and will remain "well short" of its pre-crisis level by the end of next year. This forecast assumes a second wave of coronavirus infections in the fall that considerably slow efforts to resume economic activity. If reemergence of the deadly pathogen could be avoided, OECD projects the global economy returns to pre-crisis levels in the fourth quarter 2021.

"With or without a second outbreak, the consequences will be severe and long-lasting," the OECD cautioned.

Underlining this trend, China's producer price index released overnight suggest continued weakness in global demand for manufacturing products, with PPI score for May at a worse than expected -3.7% following a -3.1 estimate month prior. China's domestic demand has weathered the initial hit from the pandemic better than many other countries, but continued growth will largely depend on trade flows and the health of key export markets.

Domestically, investors look to today's Federal Reserve monetary policy meeting for fresh clues on economic growth and inflation as the economy transitions out of lock down. The Fed will conclude its two-day meeting in Washington, D.C. 2 p.m. ET with the release of the so-called "dot-plot" showing interest rate forecasts from the Fed's 17 governors. Markets overwhelmingly expect the central bank to keep interest rates at the current range of 0% to 0.25% for the foreseeable future.

U.S. equities look to crack above three-month highs on Wednesday, with futures tied to Dow Jones Industrials indicating a 100-point gain at the market open.

In oil markets, American Petroleum Institute released its weekly inventory report on Tuesday, detailing an unexpected build in U.S. crude oil and distillate fuel supplies during the week-ended June 5th, while showing a larger-than-expected draw in gasoline stockpiles. API reported commercial crude oil supplies jumped 8.42 million bbl in the week profiled while supplies at the Cushing, Oklahoma hub continued lower, down 2.285 million bbl. Gasoline supply dropped 2.913 million bbl in the week reviewed while distillate stockpiles rose 4.271 million bbl.

Demand for motor gasoline has trended higher over the past several weeks as more people emerge from lockdown and opt for the safety of their personal vehicle, shunning public transit--a trend emerging in all places hit by COVID-19 pandemic. In New York City, a traditional U.S. hub for public transport, driving activity reached a Jan. 13 baseline for the first time since the city was hit by a wave of infections in early March, while use of public transit remains down by nearly 85% from pre-pandemic levels.

Internationally, Libya's National Oil Company declared a second closure of southern fields of Sharara and El-Feel on Wednesday, hours after attempting to bring production back online over the weekend. Libya's oil fields remain under ongoing assaults from paramilitary troops loyal to General Khalifa Haftar, with production shut-in for nearly five months prior to this week's development. Markets remain skeptical over Libya's ability to sustain output in the coming months, with the production rate likely to remain volatile.

In early trading, NYMEX West Texas Intermediate July futures dropped back $0.99 to trade near $37.98 bbl and Brent crude for August delivery was down $0.84 to around $40 bbl. NYMEX RBOB July futures were 0.56 cent lower at $1.2047 gallon, and ULSD July futures dropped back 1.07 cents to $1.1438 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

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