Oil slips as traders fret about demand

Singapore — Oil prices dipped on Thursday as a surprise build in US stockpiles fuelled fears about slow demand from the world's top oil consumer, though declines were capped by worry a potential expansion of the Gaza war may disrupt Middle East supply.

Brent crude oil futures fell 28c, or 0.3%, to $84.97 a barrel by 3.10am GMT. US West Texas Intermediate crude futures dropped 31c, or 0.4%, to $80.59 a barrel.

Both benchmarks had settled slightly higher on Wednesday.

“An expected increase in US inventories of crude oil and [petrol] are weighing on the market due to fears of weakening demand,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“But the market is in a tug-of-war situation, underpinned by the prospect that an escalation in the battle between Israel and Hezbollah may hinder supply,” he said.

The US Energy Information Administration (EIA) reported a 3.6-million barrel jump in the country's crude oil stocks last week, surprising analysts polled by Reuters who had expected a 2.9-million barrel drawdown.

US petrol stocks also rose by 2.7-million barrels, compared with analysts’ expectations for a 1-million barrel draw.

Product supplied for motor petrol, a proxy for demand, fell by about 417,000 barrels a day last week, to 8.97-million barrels a day. The four-week average for demand is about 2% under last year’s levels.

“We believe the market’s upside is limited by weak US [petrol] demand despite the peak summer driving season kicking in,” said Emril Jamil, a senior analyst at LSEG Oil Research.

Petrol margins, reflected by the crack spread between petrol to Brent and WTI, have trended lower after peaking in March at the $30s a barrel range, Jamil said.

“This weakness is further compounded by sluggish diesel demand both in Europe and the US, with margins falling since last August,” he said.

Meanwhile, worries of the Gaza war spreading to Lebanon limited price declines.

In the Middle East, cross-border strains between Israel and Lebanon’s Hezbollah have been escalating in recent weeks, stoking fears of an all-out Israel-Hezbollah war that could draw in other regional powers, including major oil producer Iran.

Turkish President Tayyip Erdogan said his country stood in solidarity with Lebanon and called on regional countries’ support.

Israeli forces pounded several areas across Gaza on Wednesday, and residents reported fierce fighting overnight in Rafah in the south of the Palestinian enclave.

Reuters