Oil drops 2%, reversing course as US petrol demand slumps

[NEW YORK] Oil fell more than 2 per cent on Wednesday, reversing early gains after a report showed petrol demand fell in the United States in the latest week.

Futures prices turned negative after weekly government data from showed lower petrol demand from a week earlier, prompting traders to shrug off bullish US crude inventory data.

"The market is trying to dismiss the number as a storm-related one-off," said Phil Flynn, senior analyst at Price Futures Group in Chicago. "While the storm may have exaggerated the numbers, it doesn't justify the amount of the sell-off that we got."

Crude inventories fell by 9.4 million barrels in the last week to 498.4 million barrels, a far steeper dive than the 1.9 million-barrel drop that analysts expected in a Reuters poll. The data reflects a period during which Hurricane Laura shut output and refining facilities.

Petrol demand in the week dropped to 8.78 million barrels per day from 9.16 million bpd a week earlier, according to the report.

Brent crude, the global benchmark, fell US$1.15, or 2.5 per cent, to settle at US$44.43 a barrel, after two days of price gains. US West Texas Intermediate settled lower by US$1.25, or 2.9 per cent, to US$41.51 a barrel.

Other data also fed fears that economic recovery from the coronavirus pandemic was lagging.

US private employers hired fewer workers than expected for a second straight month in August, suggesting the labour market recovery was slowing as the Covid-19 pandemic persists and government support for workers and employers dries up.

Oil has recovered from historic lows hit in April, when Brent slumped to a 21-year low below US$16 and US crude ended one session in negative territory.

A record supply cut by the Organization of the Petroleum Exporting Countries and allies, a grouping known as Opec+, has supported prices.

The producers have begun to return some crude to the market as demand partially recovers and Opec in August raised output by about 1 million barrels per day (bpd), a Reuters survey found on Tuesday.

REUTERS