LONDON- Oil prices fell on Wednesday after U.S. industry data showed a surprise build up in crude inventories but losses were kept in check by expectations for an uptick in demand next year on the back of progress in resolving the U.S.-China trade row.
Brent LCOc1 dropped 34 cents, or 0.5%, to $65.76 a barrel by 1315 GMT on Wednesday. U.S. West Texas Intermediate (WTI)CLc1 fell 41 cents, or 0.7%, to $60.53 per barrel.
Prices had risen more than 1% in the previous session after the announcement last week of the so-called Phase One U.S.-China trade deal, which lifted global economic prospects and improved the outlook for energy demand.
“The sizzling oil market rally came to a grinding halt after an unexpected climb in the weekly U.S. crude inventory report,” said Stephen Innes, market strategist at AxiTrader, although he said figures for stocks were “unlikely to be a game-changer.”
“Investors have transcended the trade deal-inspired relief rally euphoria, and are now banking on a fundamental demand-driven shift that could quicken the pace of the oil market rebalancing in the first quarter of 2020,” he said.
U.S. crude inventories climbed 4.7 million barrels in the week to Dec. 13 to 452 million, compared with analysts’ expectations for a draw of 1.3 million barrels, data from industry group the American Petroleum Institute showed.
Data from the U.S. Energy Information Administration (EIA) is due later on Wednesday.
“As much as the API has taken the wind out of bulls’ sails, the lull in upside is expected to be short-lived. After all, recent positive developments have given oil fundamentals for next year a supportive shot in the arm,” said Stephen Brennock of oil broker PVM.
Deeper production cuts coming from the Organization of the Petroleum Exporting Countries and its allies, such as Russia, which make up a group known as OPEC+, continued to offer some support and prevented a further slide in prices.
OPEC+, which has cut production by 1.2 million barrels per day (bpd) since Jan. 1 this year, will make a further cut of 500,000 bpd from Jan. 1 to support the market.
RBC Capital Markets said prices could stagnate if trade progress did not translate into concrete economic growth.
“Economic green shoots will help sentiment”, the bank wrote. “But broad macro worries, oil demand softness and pent up producer hedging may continue to serve as near term headwinds for oil prices.”