Oil prices ease on oversupply and weaker US demand

LONDON: Oil prices held steady on Thursday as worries over softening US demand and broad oversupply risks were offset by concerns over attacks in the Middle East and the Russian war in Ukraine.

Brent crude futures were down 13 cents, or 0.2%, at $67.36 a barrel by 0729 GMT while US West Texas Intermediate crude futures lost 17 cents, or 0.3%, to $63.50.

The benchmark contracts gained more than $1 each on Wednesday after Israel’s attack on Hamas leadership in Qatar the previous day and the mobilisation of Polish and NATO air defences to shoot down suspected Russian drones that had strayed into Poland’s airspace during an attack on western Ukraine.

The gains were a continuation of an upward trend for oil prices for much of this month after touching a three-month low on September 5.

While geopolitical conflicts provide some support to oil prices, the market was more concerned with oversupply, PVM Oil Associates analyst Tamas Varga said in a note.

“Tighter sanctions on Russian crude buyers, notably China and India, could provide further ammunition for oil bulls, but such measures remain at the level of rhetoric for now,” he added.

US crude inventories rose by 3.9 million barrels in the week to September 5, the Energy Information Administration said, against expectations of a draw of 1 million barrels.

A softer US economy, meanwhile, has raised expectations that the Federal Reserve will cut interest rates next week.

“Traders are taking a more cautious stance ahead of the upcoming US inflation report (later on Thursday), with expectations of more significant Federal Reserve rate cuts already factored in, which could be unsettled by a warmer than expected CPI report,” said IG market analyst Tony Sycamore.

On the supply side, the Organization of the Petroleum Exporting Countries and allies, a group collectively known as OPEC+, on Sunday decided to raise production from October.

While the increases are smaller than in previous months and some expectations, the move adds to the oil market weakness.

Oil prices are set to drop significantly in the months ahead because rising output will lead to large inventory builds, the EIA said this week.