Oil falls for 6th time in 7 sessions as US gasoline stock builds, crude output hits record

A policeman is seen at West Qurna-1 oil field, which is operated by ExxonMobil, in Basra, Iraq January 9, 2020.
Essam al-Sudani | Reuters

Oil prices on Wednesday fell after a U.S. report showed big increases in gasoline and distillates inventories and as crude production rose to a new record.

Prices were also under pressure from an OPEC report saying the producer group expected lower demand for its oil in 2020 even as global demand rises, as rival producers grab market share and the United States looks set for another output record.

U.S. gasoline stockpiles last week rose to their highest since February, while distillate inventories jumped to their most since September 2017, according to the U.S. Energy Information Administration (EIA).

The EIA report also showed crude production for the week ended Jan. 10 rose to 13 million barrels per day (bpd).

Brent futures fell 49 cents, or 0.8%, to settle at $64.00 a barrel, while U.S. West Texas Intermediate crude fell 42 cents, or 0.7%, to settle at $57.81 per barrel.

Earlier in the session, WTI was trading at its lowest level since Dec. 4, while Brent crude was at its lowest since Dec. 11.

"The products are basically hammering the market. You also have an all-time record in domestic production, so that's also a negative data point," said Bob Yawger, director of energy futures at Mizuho in New York.

The build in gasoline and distillates overshadowed a much-bigger-than-expected draw in crude inventories.

Crude inventories fell 2.5 million barrels last week, compared with the 474,000-barrel decline that analysts had expected in a Reuters poll. It also contrasted with data from the American Petroleum Institute late Tuesday showing a 1.1 million-barrel increase.

Earlier in the day, prices were trading slightly lower on concerns the U.S.-China Phase 1 trade deal may not provide much of a demand boost and after an OPEC report pointing to higher supply from countries outside of the producer group. The United States will maintain tariffs on Chinese goods until the completion of a second phase of a U.S.-China trade agreement, U.S. Treasury Secretary Steven Mnuchin said on Tuesday, a day before the two sides are to sign an interim deal.

Trump is slated to sign the Phase 1 trade agreement with Chinese Vice Premier Liu He at the White House on Wednesday at 11:30 a.m.EST. That agreement is expected to include provisions for China to buy up to $50 billion more in U.S. energy supplies.

Both benchmarks were also down earlier in the day due to a report from the Organization of the Petroleum Exporting Countries that said the producer group expected lower demand for its oil in 2020 even as global demand rises, as rival producers grab market share. Output in the United States was expected to touch another record in 2020.

"The continued accommodative monetary policies, coupled with an improvement in financial markets, could provide further support to ongoing increases in non-OPEC supply," OPEC said.

OPEC and some non-OPEC allies such as Russia have been curbing production to prevent an oil glut and support oil prices above $60 per barrel. Their current deal expires in March.

"The collaboration between OPEC and non-OPEC producing countries remains essential in maintaining stability in the oil market," OPEC said.