UPDATE 9-Oil prices slump 8% as virus-related demand concerns resurface

* Brent below $40/bbl; benchmarks post worst drop since
April
* U.S. coronavirus cases rise, stoking recovery fears
* U.S. Federal Reserve warns of long haul to recovery

(Updates with settlement prices, adds commentary)
By Stephanie Kelly
NEW YORK, June 11 (Reuters) - Oil prices tumbled about 8% a
barrel on Thursday, fuelled by renewed concerns about demand
destruction as new cases of coronavirus tick up globally, while
crude inventories hit a record in the United States.
U.S. coronavirus cases surpassed 2 million on Wednesday,
according to a Reuters tally, and new infections are rising
slightly after five weeks of declines. While most states have
loosened restrictions on movement that shackled demand, fuel
consumption remains 20% below typical levels, as consumers
remain cautious.
The U.S. Federal Reserve has expressed concern that this
will continue, limiting demand.
"A series of local spikes could have the effect of
undermining people's confidence in travelling, in restaurants,
entertainment," Fed Chair Jerome Powell said on Wednesday.
Brent crude LCOc1 futures fell $3.18, or 7.6%, to settle
at $38.55 a barrel. U.S. West Texas Intermediate (WTI) crude
CLc1 fell $3.26, or 8.2%, to settle at $36.34 a barrel. Brent
and WTI posted their worst daily drops since April 21 and 27,
respectively.
The weakness extended to other asset classes. Equity markets
dropped, with the S&P 500 Index down 4% on the day, while U.S.
Treasury bonds rallied.
Crude futures have gained in recent weeks as
government-imposed lockdowns eased, prompting optimism that fuel
demand would recover. In parts of Asia and Europe, where the
lockdowns were more severe, demand has recovered more sharply.
The Fed said U.S. unemployment was set to reach 9.3% at the
end of 2020 and it would take years to fall back, while interest
rates were expected to stay near zero at least through next
year. If demand does not recover, U.S. refiners and shippers will
find themselves with further excess supply. U.S. crude
inventories rose unexpectedly by 5.7 million barrels last week
to a record 538.1 million barrels, largely built on Gulf Coast
imports from Saudi Arabia, government data showed on Wednesday.
EIA/S
U.S. gasoline stockpiles also grew more than expected to
258.7 million barrels. Distillate inventories, which include
diesel and heating oil, rose by 1.6 million barrels, although
the increase was smaller than in previous weeks. "The reality is we have glut levels of global fuel
inventories," said Gene McGillian, director of market research
at Tradition Energy. "The fundamental picture still has bearish
factors that the market was turning a blind eye to."
Some OPEC+ countries, including Iraq and Nigeria, have not
complied with a supply cut pact by the group. Nigeria exceeded
its quota for production cuts under the deal by a little less
than 100,000 barrels per day (bpd) in May, the head of the
Nigerian National Petroleum Corporation Mele Kyari said on
Wednesday. The Organization of the Petroleum Exporting Countries,
Russia and other producers, a group known as OPEC+, made a deal
to cut about 10% of global supply. That pact was extended
through July over the weekend.