Oil drops as China concerns eclipse forecast for stockpile draw

Oil fell for a third day as concerns over China’s economy hurt appetite for risk assets and overshadowed industry estimates pointing to lower US inventories.

West Texas Intermediate dropped below $81 a barrel after losing 2.6% in the week’s first two sessions. Crude prices edged lower as stocks in Asia dropped along with commodities as jitters over China’s stuttering economy escalated.

Still, the American Petroleum Institute said nationwide crude stockpiles shrank 6.2 million barrels last week, according to people familiar with the figures. Inventories at the key Cushing, Oklahoma, hub were also seen declining.

Oil has backtracked this week following a surge driven by supply cuts from OPEC+ linchpins Saudi Arabia and Russia, and estimates that worldwide crude consumption is running at a record pace. The decline has come amid disappointing economic data from top importer China, with banks cutting growth estimates as the nation’s gargantuan real estate sector flounders.

“With the disappointing turn in China’s economic data dominating headlines lately, sentiments around oil prices are being kept in check” despite the API figures, said Yeap Jun Rong, market strategist at IG Asia Pte. Official figures on US stockpile moves are due for release later on Wednesday.

Timespreads have narrowed in tandem with crude benchmarks in recent sessions. The gap between WTI’s two nearest contracts was 50 cents a barrel in backwardation compared with last week’s intraday peak of 76 cents a barrel. The backwardated structure, however, still implies near-term tightness.

Reflecting that underlying positivity, UBS Group AG raised its Brent forecast for the year-end by $5 to $95 a barrel as demand is set to rise to a record.

Prices:
WTI for September delivery fell 0.4% to $80.65 a barrel at 2:04 p.m. in Singapore. Brent for October settlement eased 0.4% to $84.51 a barrel.

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