Oil Prices Drop As U.S. Inventories Rise, China COVID Worries Subside

Oil prices fell on Wednesday after industry data revealed that U.S. oil stockpiles increased more than anticipated and on concerns that a rise in COVID-19 cases in China, the world's largest importer, would reduce demand for fuel.

Brent crude futures had decreased by 44 cents, or 0.5%, to $94.92 per barrel, while U.S. West Texas Intermediate (WTI) crude futures had down by 53 cents, or 0.6%, to $88.38 per barrel. Tuesday saw a roughly 3% decline in the benchmarks.

According to market sources quoting American Petroleum Institute data, U.S. crude oil stockpiles increased by roughly 5.6 million barrels for the week ending November 4.

Seven experts surveyed by Reuters predicted an increase in crude inventories of roughly 1.4 million barrels on average.

The market had hoped that China could be loosening COVID regulations as of last week, but over the weekend, health officials announced that they will continue to take a "dynamic-clearing" approach to new infections.

The number of COVID-19 cases has increased in Guangzhou and other Chinese cities, turning the city into the newest COVID epicentre in the nation.

"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," Stephen Innes, managing partner at SPI Asset Management, said in a note.

China's slowing demand has a significant impact on the oil futures markets, according to CMC Markets analyst Tina Teng, despite the physical markets' tight supply.

According to API statistics, gasoline stockpiles increased by nearly 2.6 million barrels, compared to experts' expectations for a 1.1 million-barrel decline.

For a deeper understanding of demand in the largest economy in the world, the market will be watching for official U.S. inventory data from the Energy Information Administration due at 10:30 a.m. EST (1530 GMT).

In the meantime, supply worries persist as the Organization of the Petroleum Exporting Countries and Allies, or OPEC+ reduces output and a ban on Russian crude oil by the European Union looms.

As punishment for Russia's invasion of Ukraine, the EU will restrict imports of Russian crude by December 5 and Russian oil products by February 5.