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Oil retreats as US stockpile jump counters global supply fears

American Petroleum Institute says US stockpiles up 6.81m barrels last week, higher than expected govt figures

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American crude production is at record levels while weaker Chinese manufacturing activity plus industrial production tumbling in major oil buyers South Korea and Japan are putting a dent on demand.

Singapore

OIL retreated as signs of a sharp increase in US crude inventories and concerns over demand offset fears that rising violence in Venezuela will exacerbate a global supply crunch.

Futures in New York fell as much as 1.2 per cent after rising 0.7 per cent on Tuesday. The industry-funded American Petroleum Institute was said to report US stockpiles jumped 6.81 million barrels last week, much more than what government data due on Wednesday is forecast to show.

A gauge of manufacturing in top crude importer China fell in April, highlighting the toll a trade war between Beijing and Washington is taking on the world's No 2 economy.

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That's dragging down crude, only a week after it surged to a six-month high on a White House decision to end sanctions waivers for Iranian oil buyers. Speculation is swirling over whether a US promise that other producers will step in to make up for any shortfall can be met. However, prices in April were the calmest since August, even with political turmoil roiling Venezuela and Libya, and President Donald Trump demanding Opec pump more.

"The build in inventories clearly had an impact," said Michael McCarthy, chief market strategist at CMC Markets Asia-Pacific Pty in Sydney. "China PMI was disappointing for many in the oil market," he said, referring to the purchasing managers index that stood at 50.1 in April, down from 50.5 the previous month.

West Texas Intermediate futures for June delivery declined as much as 74 cents to US$63.17 a barrel on the New York Mercantile Exchange, and traded one per cent lower at US$63.29 at 1.19 pm Singapore time. Prices closed 41 cents higher at US$63.91 on Tuesday.

Brent for July settlement was trading 47 cents, or 0.7 per cent, lower at US$71.59 a barrel on the London-based ICE Futures Europe exchange. The June contract expired on Tuesday after rising 1.1 per cent to US$72.80. The global benchmark crude was at a premium of US$8.20 to WTI for the same month.

The Energy Information Administration (EIA) is predicted to report that nationwide crude stockpiles in the US rose by 1.75 million barrels last week, according to a Bloomberg survey. Inventories jumped 5.5 million barrels in the prior week, and are at the highest level since October 2017, EIA data show. American crude production, meanwhile, is at record levels.

On the demand front, weaker Chinese manufacturing activity signals the fragility of the economic stabilisation seen in the first quarter. In a shift from the mostly optimistic messaging so far, the US said that it's prepared to walk away from trade talks as negotiators landed in Beijing. Industrial production has also tumbled in other major oil buyers South Korea and Japan, and GDP growth slowed a notch in Taiwan.

Meanwhile, tensions gripped Venezuela as an attempt by Juan Guaido, recognised by the US as the Latin American nation's legitimate leader, to topple Nicolas Maduro's authoritarian regime flopped within hours. President Trump threatened an embargo against Mr Maduro's allies in Cuba while Secretary of State Michael Pompeo claimed that the embattled leader had planned to flee the country.

Oil loading from the port of Jose, Venezuela's main gateway, is said to have remained normal through the civil and military unrest. BLOOMBERG