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Oil prices declined for a second day on Thursday after large builds in fuel inventories in the U.S., the world’s biggest oil user, though expectations for increasing winter fuel demand and concerns over tighter supply limited the drop.
Brent crude futures fell 8 cents to $76.08 a barrel by 0409 GMT. U.S. West Texas Intermediate crude futures dropped 11 cents to $73.21. Both prices were down around 0.1% from the previous session.
Both benchmarks fell more than 1% on Wednesday as a stronger dollar and the bigger-than-expected rise in U.S. fuel stockpiles weighed on prices.
Gasoline stocks rose by 6.3 million barrels last week to 237.7 million barrels, the U.S. Energy Information Administration said on Wednesday. Analysts polled by Reuters had expected a 1.5 million-barrel build.
Distillate stockpiles rose by 6.1 million barrels in the week to 128.9 million barrels, versus expectations for a 600,000-barrel rise.
But crude inventories fell by 959,000 barrels in the week, compared with analysts’ expectations for a 184,000-barrel draw.
“Increased U.S. fuel inventories prompted some selling, but the downside is limited due to the winter demand season in the northern hemisphere,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
JPMorgan analysts expect oil demand for January to expand by 1.4 million barrels per day year-on-year to 101.4 million bpd, primarily driven by “increased use of heating fuels in the Northern Hemisphere”.
“Global oil demand is expected to remain strong throughout January, fueled by colder-than-normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays,” the analysts said.
Despite the falling prices, the market structure in the Brent futures is indicating that traders are becoming more concerned about supply tightening at the same time the demand is increasing.
The premium of the first-month Brent contract over the six-month contract reached its widest since August on Wednesday. A widening of this backwardation, when futures for prompt delivery are higher than for later delivery, typically indicates that supply is declining or demand is increasing.
Looking ahead, China’s demand trends, the incoming U.S. administration’s energy and trade policies, and its stance on the Russia-Ukraine war will be key focuses, said Nissan Securities’ Kikukawa, adding that traders were likely to refrain from taking large positions until President-elect Donald Trump takes office on Jan. 20.
