Oil drops 3% to one-month low on weak U.S. gasoline demand

South Belridge Oil Field is the fourth-largest oil field in California and one of the most productive in the U.S.
David McNew | Getty Images

Oil fell more than 2% on Wednesday, reversing course as gasoline demand fell in the United States in the latest week, an indication that economic recovery from the pandemic may be slower than expected.

Futures prices turned negative after weekly government data from the U.S. showed lower gasoline demand from a week earlier, shrugging off bullish crude inventory data.

"The market is trying to dismiss the number as a storm-related one-off," said Phil Flynn, senior analyst at Price Futures Group in Chicago. "While the storm may have exaggerated the numbers, it doesn't justify the amount of the sell-off that we got."

Crude inventories fell by 9.4 million barrels in the last week to 498.4 million barrels, a far steeper dive than the 1.9 million-barrel drop that analysts expected in a Reuters poll. The data reflects a period during which Hurricane Laura shut output and refining facilities.

Brent crude, the global benchmark, fell $1.15, or 2.5%, to settle at $44.43 per barrel, after two days of price gains. West Texas Intermediate crude settled 2.9%, or $1.25, lower at $41.51 per barrel.

Oil has recovered from historic lows hit in April, when Brent slumped to a 21-year low below $16 and U.S. crude ended one session in negative territory.

A record supply cut by the Organization of the Petroleum Exporting Countries and allies, a grouping known as OPEC+, has supported prices.

The producers have begun to return some crude to the market as demand partially recovers and OPEC in August raised output by about 1 million barrels per day (bpd), a Reuters survey found on Tuesday.