Oil prices slip as U.S. inventory build stokes fears of supply glut

(C) Reuters. FILE PHOTO: Oil pump jacks work at sunset near Midland

By Yuka Obayashi

TOKYO (Reuters) – Oil prices eased on Wednesday after a surprise build-up in U.S. crude stockpiles stoked concerns about a global supply glut even as a spike in global COVID-19 cases fuelled fears of slower recovery in fuel demand.

Brent crude futures (LCOc1) for December delivery were at $42.93 a barrel, down 23 cents, or 0.5%, as of 0332 GMT, while December U.S. West Texas Intermediate (WTI) crude (CLc1) futures slipped 20 cents, or 0.5%, to $41.50 a barrel. Both benchmarks rose in the previous session.

“A U.S. inventory build, together with the recent resurgence of the COVID-19 cases worldwide, prompted investors to make position adjustments,” said Chiyoki Chen, chief analyst at commodity broker Sunward Trading.

Crude inventories rose by 584,000 barrels in the week to Oct. 16 to about 490.6 million barrels, data from industry group the American Petroleum Institute showed, compared with analysts’ expectations in a Reuters poll for a draw of 1 million barrels. [API/S]

Adding to pressure, worldwide COVID-19 cases crossed 40 million on Tuesday, with some parts of Europe imposing renewed lockdown measures.

On the supply side, Russia’s energy minister said on Tuesday it was too early to discuss the future of global oil production curbs beyond December, less than a week after saying plans to scale back existing output restrictions should proceed.

Earlier this year the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia – together known as OPEC+ – agreed to trim production cuts in January from a current 7.7 million barrels per day (bpd) to roughly 5.7 million bpd.

At the same time, OPEC member Libya, which is exempt from the cuts, is also ramping up production after armed conflict shut almost all of the country’s output in January, pumping more oil into an oversupplied market.

Meanwhile, some support for prices came from the White House and Democrats in the U.S. Congress moving closer to agreement on a new coronavirus relief package that could boost fuel demand as President Donald Trump said he was willing to accept a large aid bill.

“Hopes for economic stimulus in the United States and other countries to combat a pandemic-led slump in consumption are expected to cap losses, but planned reduction in output cuts by OPEC+ will also limit any future gains,” said Satoru Yoshida, a commodity analyst with Rakuten Securities, predicting an upside and downside potential of $5 a barrel through the year.