Oil prices dropped an almost 1% on Wednesday, following a surprise build in the U.S. crude inventories led by a concern within the trading and analytical communities that a new round of tariffs on Chinese goods might be imposed in the following days.
Namely, Brent settled down 62 cents to $63.72 per barrel, while West Texas Intermediate fell 48 cents to settle at $58.76 per barrel.
In a turn of events, on Wednesday the Energy Information Administration reported that crude inventories rose 822,000 barrels last week, compared with analysts’ expectations in a Reuters poll for a 2.8 million-barrel drop.
Reuters reports that U.S. inventories of gasoline jumped 5.4 million barrels and distillates, which include diesel and heating oil, rose 4.1 million barrels – both more than double analysts’ expectations. Whatsoever, U.S. gasoline and heating oil futures were down about 2%.
John Kilduff, a partner at Again Capital LLC in New York quoted to Reuters that gasoline demand “had held up most of the year, quite extraordinarily,” adding that
The inventory data was rather bearish when you consider the fall in refinery run rates and the cratering of gasoline demand.
Refinery utilization rates fell 1.3% points last week to 90.6% of total capacity. Finished motor gasoline consumption fell to 8.8 million barrels per day (bpd), according to EIA data, the lowest since February.
What is more, OPEC’s expectation of a small deficit suggests a tighter market than previously thought. It was initially projected that there would be a 2020 supply surplus, but U.S. shale output has grown more slowly than expected, as U.S.-China trade tensions continue to impact the demand, with a December 15 deadline for the next round of U.S. tariffs on Chinese imports approaching.
Now, OPEC as well as other allied oil producers led by Russia have previously decided to deepen supply cuts amid a weak outlook for oil demand growth next year.
Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut said that
The market seems to have stalled. There’s uncertainty around fuel demand growth because of the world trade crisis.
Namely, in September, China imposed tariffs on US crude while the US tariffs on Chinese goods came into place. Following US President Trump’s announcement on imposing new tariffs of 10% on the remaining 300 billion Dollars of goods and products coming from China in the early days of August, new tariffs took effect on Sunday, September 1st.