Oil slips after unexpected increase in US stockpiles

London — Oil futures fell by about 1% on Thursday, extending losses from the previous day, as a surprise jump in US crude stocks weighed on the market along with the fear of a recession that was heightened by disappointing US retail sales and output data.

Brent crude futures lost 65c, or 0.8%, to $84.33 a barrel at 10.30am GMT, after earlier easing to $83.76. US West Texas Intermediate (WTI) crude futures declined 79c, or 1%, to $78.69 a barrel. It earlier fell to a low of $78.13.

“Bigger-than-expected fall in US producer prices, a drop in retail sales and the massive decline in manufacturing output last month raised worries once again about the economic cost of rate hikes,” PVM Oil analyst Tamas Varga said.

US December retail sales fell by the most in a year, while manufacturing output recorded its biggest drop in nearly two years, as higher borrowing costs hurt demand for goods.

Still, Federal Reserve officials said interest rates needed to rise beyond 5% even as inflation shows signs of having peaked and economic activity is slowing.

Adding to the pall, data from the American Petroleum Institute showed US crude oil inventories rose by about 7.6-million barrels in the week to end-January 13, according to market sources.

The mean average forecast from a Reuters’ poll of nine analysts had been for a fall of about 600,000 barrels.

The big build marked the second consecutive week of large inventory increases.

However, distillate stockpiles, which include diesel and heating oil, fell by about 1.8-million barrels against analysts’ expectations for a 120,000-barrel increase.

The API report was delayed by a day due to Monday’s Martin Luther King Day public holiday in the US. The government’s Energy Information Administration will release its weekly inventory report on Thursday.

With aggressive rate hikes still on the cards, the dollar climbed, weighing on oil demand as a stronger greenback makes the commodity more expensive for those holding other currencies.

Still, International Energy Agency (IEA) head Fatih Birol said on Thursday that energy markets could be tighter in 2023, adding he hoped prices would not rise further to ease the pressure on energy-importing developing countries.

Reuters