Oil prices plunged on Wednesday after industry data showed that U.S. crude stockpiles surged more than predicted and on concerns that a rebound in COVID-19 cases in top importer China would weaken fuel demand.
Brent crude futures fell 0.7%, or 69 cents, to $94.67 a barrel by 1331 GMT, while U.S. West Texas Intermediate (WTI) crude futures had slipped 0.7%, or 63 cents, to $88.28 a barrel. The benchmarks dropped around 3% on Tuesday.
U.S. crude oil inventories grew by about 5.6 million barrels for the week ended Nov. 4, according to market sources referencing American Petroleum Institute figures, while seven analysts surveyed by Reuters estimated on average that crude inventories would grow by roughly 1.4 million barrels.
Last week, the market had held onto hopes that China might be heading toward easing COVID-19 restrictions, but over the weekend health officials said they would abide by their “dynamic-clearing” approach to new infections.
COVID-19 cases in Guangzhou and other Chinese cities have increased, with millions of residents of the global manufacturing hub being requested to take COVID-19 tests on Wednesday.
Buy Crypto NowStephen Innes, managing partner at SPI Asset Management, said in a note:
“With that (China reopening) narrative getting pushed back, coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force this morning in Asia.”
In another negative sign, API data showed U.S. gasoline inventories grew by about 2.6 million barrels, against analysts’ forecasts for a decrease of 1.1 million barrels. The market will take a further view on demand in the world’s largest economy with the publication of official U.S. inventory data from the Energy Information Administration at 10:30 a.m. EST (1530 GMT).
Craig Erlam, senior markets analyst at OANDA, said:
“If the large inventory build is confirmed by EIA today, it will be interesting to see if it generates a bigger reaction in the markets, with Brent now trading back in the middle of the $90-$100 range.”
Meanwhile, supply concerns persist.
The European Union will impose sanctions on Russian crude imports by Dec. 5 and Russian oil products by Feb. 5, in response to Russia sending its troops into Ukraine. Russia describes its actions in Ukraine as a “special operation”.
