Oil drops on surprise US crude stocks and stimulus setback

Melbourne — Oil fell in early trade on Wednesday after industry data showed US crude oil stocks rose last week and US President Donald Trump rattled markets by threatening not to sign a long-awaited Covid-19 relief bill.

US West Texas Intermediate (WTI) crude futures fell 46c, or 1%, to $46.56 a barrel, while Brent crude futures dropped 46c, or 0.9%, to $49.62.

Both contracts fell nearly 2% on Tuesday, in a second straight session of declines, with Brent just managing to settle above $50 ahead of the release of the data from the American Petroleum Institute (API).

API reported crude inventories rose by 2.7-million barrels in the week to December 18, compared with analysts’ expectations in a Reuters poll for a decline of 3.2-million barrels.

“Rubbing salt in the oil market wounds today, oil prices lurched lower after yet another inventory build that was very much bearish to consensus,” Axi chief market strategist Stephen Innes said in a note.

Distillate stocks, which include diesel, heating oil and jet fuel, rose by 1-million barrels, also a surprise against expectations for a drawdown of 904,000 barrels.

However, fuel stocks fell by 224,000 barrels, against expectations for a build of 1.2-million barrels.

Oil fell further after Trump threatened not to sign an $892bn coronavirus relief bill, saying he wants Congress to increase the amount in the stimulus cheques which legislators approved on Monday.

Covid-19 cases continued to surge in the US, with more than a million new cases in just six days, and Americans were warned again to avoid travelling for Christmas, further dampening fuel demand.

“If the US goes back anywhere near the edge of the Covid-19 lockdown abyss, it could be lights out for the oil rally for at least another 4-8 weeks, not to mention a big price wipeout,” Innes said.

Reuters