LONDON – Oil prices fell on Wednesday as industry data showed a rise in crude and fuel inventories in the United States and as the U.S. dollar strengthened, signalling that demand for oil is coming under pressure.
Brent crude oil futures fell 52 cents, or 0.6%, to $82.64 a barrel by 1400 GMT. U.S. West Texas Intermediate crude futures fell 67 cents, or 0.9%, to $77.71 a barrel.
Both benchmarks fell marginally in the previous session on signs of easing supply tightness and weaker global oil demand from an EIA forecast report on Tuesday. [EIA/M]
U.S. crude stocks rose by 509,000 barrels in the week ended May 3, market sources said, citing American Petroleum Institute figures. Gasoline and distillate fuel inventories also rose, they said.
“API numbers released overnight were moderately bearish due to stock builds in both crude and products… Concern over weaker-than-usual U.S. gasoline demand and this stock build have weighed on the prompt RBOB gasoline crack,” ING analysts said in a client note.
Official U.S. government data on stockpiles is due at 1430 GMT. Analysts polled by Reuters expect U.S. crude oil inventories to have fallen by about 1.1 million barrels last week. [EIA/S]
A stronger U.S. dollar, which makes it more expensive for holders of other currencies to buy oil, also weighed.
“Taking away the current geopolitical trigger leaves the market staring into a world of sticky inflation in the U.S. that is countered by interest rates that not only keep the U.S. dollar elevated but make any sort of commodity trading more expensive,” PVM Oil analyst John Evans said.
Hopes of a ceasefire in Gaza have also put pressure on oil prices in recent sessions, with some analysts saying the risk premium on oil had declined in tandem.
The U.S. believes negotiations on a Gaza ceasefire should be able to close the gaps between Israel and Hamas. U.S. Central Intelligence Agency Director Bill Burns will travel to Israel on Wednesday for talks with the Israeli Prime Minister Benjamin Netanyahu and other top officials, a source familiar with the matter told Reuters.
Morgan Stanley (NYSE:MS) analysts said they see the geopolitical risk for oil prices dissipating as fears of further escalation in the conflict subside.
They said they had removed a $4 risk premium on oil prices for the third quarter as a result yet still see strong fundamentals supporting Brent prices at around $90 a barrel over the summer.
Cautious expectations on supply cuts from the Organization of the Petroleum Exporting Countries and its allies (OPEC+) ahead of a June 1 policy meeting also weighed on markets.
Russian Deputy Prime Minister Alexander Novak said on Tuesday that there had been no discussions about an oil output increase by OPEC+.
This came after an earlier statement in the day in which he said the group had the option of increasing production.
(Additional reporting Trixie Yap in Singapore; editing by Jason Neely, Kirsten Donovan)
