Oil retreated back below $39 a barrel after an industry report pointed to a bigger-than-expected increase in US crude stockpiles, offsetting supply disruptions from Hurricane Zeta.
The American Petroleum Institute reported crude inventories expanded by 4.58 million barrels last week, while gasoline stockpiles rose for a second straight week, according to people familiar with the data. Official government figures are due Wednesday. A stronger US dollar is also having an impact, making commodities priced in the currency less appealing to investors.
Oil rallied on Tuesday after almost half of US Gulf output was shuttered ahead of Zeta, which is expected to make landfall in Louisiana late Wednesday.
Oil is testing the lower end of its recent trading range as coronavirus cases climb across Europe and the US, raising concerns the fragile demand recovery may be derailed. The market is also facing rising supply from Libya, presenting OPEC+ with some tough decisions on the future of its output cuts when the producer group meets at the end of next month.
“The US Gulf closures are seen as fleeting, whereas sizable stock-builds in the US serve to amplify the market’s bearish sentiment on demand,” said Vandana Hari, founder of Vanda Insights in Singapore. “The path of least resistance for crude prices is downward.”
Brent’s three-month timespread was $1.10 a barrel in contango — where prompt prices are cheaper than later-dated ones — compared with 99 cents a week earlier, signaling concerns about over-supply are persisting.
US gasoline inventories expanded by 2.25 million barrels last week, while crude supplies at the key storage hub of Cushing climbed by 136,000 barrels, according to the API. The median estimate in a Bloomberg survey forecast nationwide crude stockpiles increased by 1.5 million barrels
Meanwhile, Libya is ramping up production quickly after reopening the last of its oil fields and ports following a truce in a years-long civil war. Daily crude output has surged from less than 100,000 barrels in early September to almost 700,000 as of Monday, and may rise to more than 1 million barrels a day by mid- to late-November.
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