Concerns that oil prices had climbed too strongly in past weeks have been validated after the West Texas Intermediate crashed by nearly 10 per cent.

The drop came on the back of reports by the US Energy Information Administration (EIA) that crude stocks had risen to a record high.

The West Texas Intermediate crude spot price is currently trading at $US35.75 ($52.30) a barrel, down from its close of $US39.60 a barrel on Wednesday.

Meanwhile, the benchmark Brent Crude fell 8 per cent to $US38.33 a barrel.

The EIA reported a 5.7-million-barrel increase in US crude inventories to a record 538.1 million barrels for the week ending June 5.

Highlighting how badly demand has fallen in the world’s biggest economy, this is about 14 per cent higher than the five-year average for this time of the year.

Other factors contributing to the fall in oil prices include the US Federal Reserve forecasting a 6.5 per cent contraction in US gross domestic product for 2020, which sent stock markets around the world falling, and concerns about a second wave of COVID-19 infections in the US after it crossed the 2 million mark.

The fall validates concerns raised by commentators such as Goldman Sachs, which warned earlier this week that “risks to the downside had increased substantially”.

Meanwhile, quoted OANDA Asia Pacific senior market analyst Jeffrey Halley as saying that the fall in oil prices was as much about timing as COVID-19 cases.

“Some sort of correction had been overdue after the massive increase in speculative long positioning, and oil’s breath-taking rally over the past month,” he added.

The low oil prices are already impacting some of the major producers with Venezuela having just two active rigs — only one of which is drilling for oil in early May, down from 25 operational rigs in March.

While Venezuela’s oil industry had already been collapsing even before the oil price crash due to strict US sanctions, the current crisis has led state oil firm PDVSA to start shutting oilfields.

Non-OPEC producer Oman, one of most vulnerable economies in the six-nation Gulf Cooperation Council, has reportedly asked its fellow Gulf countries about the potential for financial aid.

Bloomberg quoted an Omani foreign ministry official as saying that the country is engaging with its neighbours to discuss ways to back up its national program to mitigate the impacts of the drop in oil prices and the coronavirus outbreak.

ASX Small Cap oil companies

Despite the low oil prices, Winchester Energy (ASX:WEL) is turning its focus to future growth and is preparing to execute several low-cost re-completions of existing wells to augment existing production.

The company said on Thursday that it had reduced oil production operating costs to a low $US2.46 a barrel and that considerable effort had been undertaken to manage and balance its costs and revenues.

It is also looking to capitalise on the low oil price to potentially acquire new project/play opportunities.

3D Oil (ASX:TDO) completed the farm-out of its T/49P exploration permit to ConocoPhillips Australia yesterday.

The company will receive a cash payment of $5m within two weeks and the supermajor will move to acquire, process and interpret at least 1,580sqkm of 3D seismic.

Should Conocophillips proceeds to drill an exploration well, 3D Oil will also be carried for up to $US30m in drilling costs if the supermajor decides to drill an exploration well.