Oil prices fall as China concerns offset large drop in US crude stocks

Futures gained in the previous session after Saudi Arabia denied report on talks with Opec+ to raise output

Traders at the New York Stock Exchange. Brent crude has come under pressure in recent weeks amid rising Covid-19 cases in China, the largest oil importer. Reuters

Oil prices fell on Wednesday as concerns about lower fuel demand in China, the world’s second-largest economy, offset a large drop in US crude stocks.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.6 per cent lower at $86.98 a barrel at 2.59pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down1.4 per cent at $79.86.

US crude oil inventories fell by about 4.8 million barrels last week, analysts said, citing data from the American Petroleum Institute.

The indicator, which shows the level of oil stored, gives an overview of US petroleum demand. If the increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices.

“Oil is having a tug of war, with China Covid demand concerns getting countered with what appears to be a motivated Saudi Arabia to keep the oil market tight,” said Edward Moya, senior market analyst at Oanda.

Prices fell about $5 late Monday after the Wall Street Journal reported that top crude exporter Saudi Arabia was considering raising output targets by 500,000 barrels per day at the Opec+ meeting on December 4.

Crude futures rebounded to about $88 a barrel after Saudi Energy Minister Prince Abdulaziz bin Salman said the current output cut of 2 million bpd would continue until the end of 2023.

The UAE, Kuwait, Iraq and Algeria have backed Prince Abdulaziz's comments.

Suhail Al Mazrouei, Minister of Energy and Infrastructure, said in a tweet on Monday that the UAE remained committed to Opec+'s "aim to balance the oil market and will support any decision to achieve that goal”.

Opec+, an alliance of 23 oil-producing countries, has slashed its collective output by 2 million bpd amid worsening signs of a global economic slowdown.

The group will meet next on December 4, a day before an EU embargo on Russian crude exports is set to come into effect.

The Group of Seven advanced economies will impose a price cap on Russian oil from December 5 to limit the country’s ability to finance its war in Ukraine without aggravating the energy crisis.

“The EU is reportedly considering giving some leeway on implementation of a price cap on Russian oil, to avoid catching out importers whose cargoes are still mid-journey when the cap comes into force,” said Edward Bell, senior director of market economics at Emirates NBD.

Prices were also driven lower by comments made by US energy envoy Amos Hochstein.

The US can still manage any energy emergency with the Strategic Petroleum Reserve, Mr Hochstein told CNBC on Tuesday.

The world's largest economy has sold 180 million barrels of oil from the reserve to tackle high crude prices resulting from the Russia-Ukraine conflict.

Meanwhile, Covid-19 cases in China, the world’s largest crude importer, are surging towards record highs, prompting concerns that the country will reintroduce lockdowns and strict containment measures.

“The recent oil price slide was overdone and given global economic activity, excluding China, won’t completely fall off a cliff, prices should continue to stabilise here,” said Mr Moya.