By Ambar Warrick
Investing.com– Oil prices fell on Wednesday after data indicated that U.S. crude inventories grew more than expected last week, although signs of robust gasoline demand and a warning on tighter supplies from Saudi Arabia kept losses in check.
On Tuesday, U.S. crude inventory increased by 4.5 Million barrels in the week ending October 21, surpassing expectations of a rise of 200,000 barrels.
The reading may reflect drawdowns in the Strategic Petroleum Reserve (SPR), but it also signals a near term surplus in oil supply which is negative for the prices.
This reading comes before an expected U.S. crude inventory increase of 1 million barrels last Wednesday.
London-traded fell 0.7%, to $91.09/barrel, while it fell 0.5% to $84.86/barrel by 22.09 ET (02.09 GMT). Both contracts rose slightly on Tuesday.
Crude markets saw a weak start of the week, as a series of slower-than-expected manufacturing data raised concerns about a worsening crude oil demand. Data from China, the world’s largest crude importer, also showed that oil shipments to the country slowed drastically this year.
Oil prices fell sharply from their highest levels in the past year as markets were worried about increased U.S. supplies and slowing demand. However, oil prices have rebounded after a cut in supply by the Organization of Petroleum Exporting Countries plus its allies (OPEC+).
Tuesday’s API data also showed that gasoline inventories fell sharply last week, indicating that U.S. fuel demand remains steady. According to U.S. Energy Information Administration, it had reached an eight-year low at mid-October.
Further supporting crude prices, Saudi Arabia’s Energy Minister Abdulaziz bin Salman warned that Washington’s release of SPR supplies would result in more pain in the coming months. To counter a surge in oil prices, the Biden Administration began drawing down on the SPR this past year. They have threatened more releases as a response to the OPEC+ supply reduction.
The SPR is currently at its lowest level since 1984, which has drawn flak from Biden’s political rivals. The U.S. government has recently announced plans to replenish the SPR but it will only do this when oil prices are significantly lower than current levels.
This scenario is unlikely, considering that OPEC+ warned of more supply cuts to keep oil prices high. Further restrictions against Russia may cause oil supplies to tighten.