Oil falls on fears of weakening demand, despite tight supplies

Singapore — Oil prices fell in early trade on Wednesday after industry data showed a surprise build in US crude inventories against analysts’ forecast of a decline, reinforcing fears about weakening demand even as supply tightens.

Brent crude futures dropped 19c, or 0.2%, to $80.49 a barrel, while US West Texas Intermediate (WTI) crude futures fell 15c, or 0.2%, to $75.24 at 4.14am GMT.

Market players are also taking profits as risks persist ahead of a US Federal Open Market Committee (FOMC) meeting, said Tina Teng, a CMC Markets analyst.

“But I still expect that oil prices may continue their recent rebounding pace,” she said, adding that previous sell-offs, fuelled by fears of recession, had paused after two consecutive data releases indicated cooler US inflation.

US Federal Reserve policymakers are expected to raise interest rates by 50 basis points (bps) on Wednesday, slowing from the 75 bps pace they had stuck to in meetings since June as they grapple with inflation.

The US consumer price index (CPI) rose 0.1% in November after advancing 0.4% the previous month.

“Any commentary from the Fed indicating further deceleration of rate hikes in the US would be supportive to oil prices from here,” said Baden Moore, head of commodities research at National Australia Bank (NAB).

US crude inventories rose by about 7.8-million barrels in the week to December 9, according to market sources citing data from the American Petroleum Institute (API), while analysts polled by Reuters had expected a 3.6-million barrel drop in stocks.

The inventory data dampened bullish sentiment that sent the market up 3% in the previous session, on hopes for a revival in Chinese demand with the easing of Covid-19 restrictions and for a weakening dollar after data showed US inflation subsiding.

ANZ Research analysts, citing data from Chinese firm VariFlight, highlighted signs of domestic travel picking up in China, with flight activity having surged to about 65% of pre-pandemic levels on Monday, up from 22% on November 29.

The Organization of the Petroleum Exporting Countries (Opec) said in its latest monthly report that it is expecting to see robust global oil demand growth in 2023, with potential economic upside coming from a relaxation of China’s Covid-19-related policies.

Oil prices have also been supported this week by the outage of TC Energy’s Keystone Pipeline, which ships 620,000 barrels a day of Canadian crude to the US.

The pipeline had shut after a 14,000-barrel spill, with local officials saying on Tuesday that the cleanup will take at least several weeks more.

Reuters