Oil prices fall more than 2% on U.S. inventory build, China COVID worries

NEW YORK: Oil prices dropped by about $2 a barrel on Wednesday after industry data showed that U.S. crude stockpiles rose more than expected and on concerns that a rebound in COVID-19 cases in top importer China would hurt fuel demand.

Brent crude futures were down $2.01, or 2.1%, to $93.35 a barrel by 10:53 a.m. EST (1553 GMT), while U.S. West Texas Intermediate (WTI) crude futures had fallen $2.09, or 2.4%, to $88.82 a barrel. The benchmarks fell around 3% on Tuesday.

Crude inventories jumped by 3.9 million barrels in the last week to 440.8 million barrels as oil production increased, U.S. Energy Information Administration data showed, compared with analysts’ expectations in a Reuters poll for a rise of 1.4 million barrels.

U.S. gasoline stocks shed 900,000 barrels in the week to 205.7 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a drop of 1.1 million barrels. ?Distillate stockpiles, which include diesel and heating oil, fell by about 500,000 barrels, a smaller-than-expected decline.

“The report was once again mixed but tilted towards bearish, with the crude oil build and the jump in domestic production,” said John Kilduff, partner at Again Capital LLC in New York.

Last week, the market had latched onto hopes that China might be moving toward relaxing COVID-19 restrictions, but over the weekend health officials said they would stick to their “dynamic-clearing” approach to new infections.

COVID-19 cases in Guangzhou and other Chinese cities have surged, with millions of residents of the global manufacturing hub being required to have COVID-19 tests on Wednesday.

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“With that (China reopening) narrative getting pushed back, coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force this morning in Asia,” Stephen Innes, managing partner at SPI Asset Management, said in a note.

In another bearish sign, API data showed U.S. gasoline inventories rose by about 2.6 million barrels, against analysts’ forecasts for a drawdown of 1.1 million barrels.

Meanwhile, supply concerns remain.

The European Union will ban Russian crude imports by Dec. 5 and Russian oil products by Feb. 5, in retaliation for Russia’s invasion of Ukraine. Russia calls its actions in Ukraine a “special operation”.