Oil prices dropped on Wednesday as a larger than expected build-up in US crude stocks and growing Covid-19 cases in China eased concerns of tight supply in the market.
Brent, the benchmark for two thirds of the world’s oil, was 2.3 per cent lower at $93.04 a barrel at 10.56pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.9 per cent at $86.27 a barrel.
US crude oil inventories rose by about 5.6 million barrels last week, sources said, citing data from the American Petroleum Institute (API).
Analysts were expecting a growth of 1.1 million-1.4 million barrels.
The indicator, which shows the level of oil and product stored, gives an overview of US petroleum demand. If the increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices.
The US Energy Information Administration, which will release its weekly crude inventory data later on Wednesday, has cut its supply forecast for 2023 US crude oil output for the fifth time in a row to 12.31 million barrels per day.
Crude prices were also dragged down by concerns about rising coronavirus cases in China, both the world’s second-largest economy and biggest crude importer.
On Tuesday, China reported 1,294 locally transmitted confirmed Covid-19 cases, state-run Xinhua news agency said, citing the National Health Commission.
“Bets that China will reopen soon are losing momentum as cases jumped in Guangzhou and other key Chinese cities,” Edward Moya, senior market analyst at Oanda, said.
“Brent crude is still close to the $100 a barrel level for now and it seems short-term risks to supplies have traders looking for a bullish move higher.”
Oil prices surged to a two-month high on Friday on reports that Beijing was planning to end a regulation that imposes a penalty on airlines for bringing virus cases into the country.
However, a China National Health Commission representative stressed at a press conference on Saturday that the country would continue with its strict measures, dashing hopes of a rebound in oil demand in the world’s second-largest economy.
“A weaker dollar is also boosting crude here but that support might be short-lived as this move in the dollar is likely short-covering,” said Mr Moya.
The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, has dropped 3 per cent over the past month.
Uncertainty stemming from Russia’s military offensive against Ukraine and China’s Covid curbs have driven investors to safe-haven assets such as the dollar in recent months.
Polls began to close in states across the US on Tuesday, as the midterm elections to determine which party will control Congress continued.
“Some traders anticipated a strong dollar if the Republicans do well tonight, but this move was more about hitting stops,” Mr Moya said.
