Oil Sinks on Higher US Crude Inventories

By Adedapo Adesanya

Oil fell on Wednesday as higher US crude inventory and sluggish economic data from China raised concerns about global fuel demand, causing Brent crude to drop 0.5 per cent to sell at $86.56 a barrel, as the US West Texas Intermediate (WTI) crude depreciated by 0.4 per cent to $83.44 per barrel.

According to the US Energy Information Administration data on Wednesday, crude inventories rose by 5.9 million barrels in the last week to 445.6 million barrels, in contrast to a substantial inventory decline of 17 million barrels for the previous week—the largest drawdown in oil inventories for years.

The report comes a day after the American Petroleum Institute (API) estimated oil inventories had added a little over 4 million barrels over last week.

US crude oil exports fell by 2.9 million barrels per day last week, the steepest fall on record, to 2.36 million barrels per day, according to the data.

However, the market is going to expect crude exports to go up because of the US crude futures and Brent spread, market analysts noted.

Also weighing on market sentiment, the consumer sector in China fell into deflation, and factory-gate prices extended declines in July as the world’s second-largest economy struggled to revive demand.

China’s oil imports had fallen by close to 20 per cent in July from June when they hit a record high. The data seems to have worried traders about the resilience of demand in the world’s top importer.

China’s growth forecast, which was optimistic at the beginning of 2023, is failing to hold an economic revival post-COVID.

The market is awaiting July’s Consumer Price Index (CPI) from the United States, due on Thursday, which will indicate the US Federal Reserve’s future monetary policy.

Market watchers expected the CPI to show a slight year-over-year acceleration, while on a month-to-month basis, consumer prices are seen increasing 0.2 per cent, the same rate as in June.

There is also concern about the demand for oil in Europe and the United States amid a series of rate hikes aimed at reining in inflation but making life more expensive in the process.

However, oil prices remained supported by supply tightness worries as tensions between Russia and Ukraine in the Black Sea region could threaten the shipment of Russian oil.

Top exporter, Saudi Arabia, plans to extend its voluntary production cut of 1 million barrels per day for another month to include September. Russia also said it would cut oil exports by 300,000 barrels per day in September.