Oil slips as US inventory stockpiles rise for first time in two months

Oil prices eased amid signs of an inventory build-up in the US, with stockpiles at a key delivery point rising for the first time in two months.

About 2.05 million barrels of inventory was added last week, according to the American Petroleum Institute. Oil stocks at Cushing, which is the main delivery point for West Texas Intermediate, the key US benchmark, rose for the first time since May.

Brent, the international benchmark, was down 0.12 per cent at $43.03 per barrel, while WTI slipped 0.1 per cent to trade at $40.58 per barrel at 6.33pm UAE time.

A build-up of inventories at landlocked Cushing is of concern as a near saturation of the storage facilities in April led to WTI plunging below zero to trade briefly at minus $40 per barrel.

The US is the country most affected by the coronavirus pandemic, with the number of cases standing at 3 million yesterday, according to the Johns Hopkins University tracker. The country also has the highest number of deaths from the pandemic, with the current toll at 131,480.

The rising number of cases has prompted several US states such as Texas to reimpose lockdown measures, hurting demand for crude as a result of mobility restrictions.

Softening demand and an abundance of supply “could trigger a downside correction” in prices to the region of $38/$35 per barrel, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“WTI crude sees fading appetite near the $40 per barrel as [the] prospects of post-Covid recovery are being dashed by the rising number of new cases, as the API data hints at a surprise build in US oil inventories last week,” Ms Ozkardeskaya said.

Yesterday, Emirates NBD, Dubai’s largest lender, raised its forecast for oil prices, anticipating Brent and WTI to average $42.55 per barrel and $37.70 per barrel, respectively, in 2020. The benchmarks should trend higher in 2021, but the levels will remain “muted”, the bank said in a note.

Demand is expected to recover during the rest of the year, registering growth of more than 13 million barrels per day in the third quarter and gaining an additional 2 million bpd in the final quarter. Demand fell more than 12 million bpd in the second quarter.

“As economic recovery takes hold in many markets, oil demand will track alongside it, although the gains across geographies and products are unlikely to be evenly distributed,” said Edward Bell, senior directorof market economics at Emirates NBD.

The demand decline has been cited as the worst on record by the International Energy Agency.