Oil stable after 3% drop on China demand worries

Melbourne — Oil prices were mostly unchanged in early trade on Wednesday, after sliding 3% in the previous session on worries about demand stalling on potential new lockdowns in top oil-importer China as Covid-19 cases rebound.

Brent crude futures rose 2c to $95.38 a barrel by 1.26am GMT, while US West Texas Intermediate (WTI) crude futures slipped 4c to $88.87 a barrel.

Analysts said market sentiment remains split between worries about a recession hitting demand, while supply stays tight as a European ban on Russian crude looms and the Organization of the Petroleum Exporting Countries and allies (Opec+) cuts output.

“Unless you think we’re heading into a deep recession, I would expect any market weakness will be short-lived,” said Westpac senior economist Justin Smirk.

Industry data showing a bigger-than-expected build in US crude stockpiles kept a lid on gains on Wednesday.

US crude-oil inventories rose by about 5.6 million barrels for the week ended November 4, according to market sources citing American Petroleum Institute (API) figures.

By comparison, seven analysts polled by Reuters estimated on average that crude inventories rose by about 1.4 million barrels.

Last week, the market had latched on to hopes that China might be moving towards easing Covid-19 curbs, but over the weekend health officials said they would stick to their “dynamic-clearing” approach to new infections.

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

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

The market will be looking out for official US inventory data from the Energy Information Administration (EIA) due at 10.30am EST (3.30am GMT) for a further view on demand in the world’s biggest economy. 

Reuters