Oil drops more than 1% as US stockpiles rise sharply

[NEW YORK] Oil prices fell on Wednesday (Oct 27) after US crude oil stockpiles rose more than expected, even as fuel inventories dropped and tanks at the nation's largest storage hub emptied further.

The bigger-than-expected rise in US crude stocks gave some investors an impetus to unload long positions after strong gains in recent weeks brought both the Brent and US crude benchmarks to multi-year highs.

Brent oil futures ended down US$1.82 or 2.1 per cent to US$84.58 a barrel, after closing at a 7-year high on Tuesday (Oct 26).

US West Texas Intermediate (WTI) crude settled down US$1.99 or 2.4 per cent to US$82.66 a barrel.

"We've had a reasonable pullback on profit-taking more than anything, but still US$80 for (WTI) is a strong number," said Gary Cunningham, director of market research at Tradition Energy.

Both benchmarks closed on Friday (Oct 22) with a seventh straight weekly gain as major producers hold back supply and demand rebounds after the easing of pandemic restrictions.

Crude oil inventories rose by 4.3 million barrels last week, according to the US Energy Department, more than the expected 1.9 million-barrel gain. Petrol stocks dropped by 2 million barrels, lowering them to levels not seen in nearly 4 years, as US consumers grapple with rising prices to fill their vehicles' tanks.

Storage at the WTI delivery hub in Cushing, Oklahoma, is more depleted than at any point in the past 3 years, with prices for longer-dated futures contracts pointing to supplies staying at those levels for months.

Oil has advanced of late on the expectation that nations like China and India will respond to shortages in coal and natural gas by switching to crude-derived products for power generation and heating. Such demand could boost overall crude consumption by more than half a million barrels of oil a day.

Cunningham said that expectation may be overstated, however, depending on the state of the global economy.

"There was such a rally in natgas that there was a lot of concerns about generation assets being shifted back to oil-based generation - that was a big part of the rally and now some of that is easing a bit," he said.

REUTERS