Oil prices drop further on US stock build

For the third day in a row, oil prices experienced a decline, primarily due to a substantial increase in U.S. crude and gasoline stockpiles, along with easing concerns over supply issues.

Brent futures slipped by 30 cents, equivalent to 0.35%, to reach $85.52 a barrel at 0405 GMT, while U.S. West Texas Intermediate crude dropped by 42 cents, or 0.50%, settling at $83.07 a barrel.

Both benchmark oil prices saw a reduction in their earlier gains this week, following a more than 2% fall during the preceding session. This drop was primarily attributed to the U.S., where crude oil stockpiles surged by approximately 12.9 million barrels, surpassing the expectations of a 500,000-barrel gain anticipated by analysts in a Reuters poll.

Analysts at ING noted, “Unlikely to help sentiment this morning are API inventory numbers…Lower refinery run rates due to maintenance likely contributed to this build.”

Additionally, gasoline inventories also experienced a significant increase of 3.6 million barrels, a notable contrast to the anticipated 800,000-barrel drop projected by analysts. This ongoing trend raised concerns regarding a potential slowdown in fuel demand in the United States. JP Morgan analysts observed, “Fuel prices may be closer to consumers’ pain threshold than inflation-adjusted prices might suggest. There are already signs that consumers have responded by cutting back on fuel consumption.”

In particular, in PADD 5, with California as its largest consumer, gasoline demand reportedly declined by 100,000 barrels per day between June and September, reaching a seven-month low of 1.46 million barrels per day.

Market participants were keenly awaiting further inventory data from the U.S. Energy Information Administration (EIA), set to be released later in the day at 1500 GMT.

In contrast to these inventory concerns, apprehensions about supply issues in the Middle East have been easing, which has contributed to the downward pressure on oil prices. ANZ analysts noted, “Crude oil extended losses on signs the impact of the Israel-Hamas war on the oil market will be limited.” ING analysts concurred, saying, “The risk premium continues to erode with the conflict largely contained to Israel and Hamas.”

The U.S. Energy Information Administration, however, expects global oil inventories to decline further in the second half of 2023. These lower inventories, projected to keep global oil supply below consumption levels, are anticipated to provide support to oil prices, as stated in the EIA’s monthly report.

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