Oil rises on falling inventory, but demand fears cap upside

Oil pumpjacks operate at dusk Willow Springs Park in Long Beach, California on April 21, 2020.
Apu Gomes | Getty Images

Oil prices steadied on Thursday, as the bullish impact of a fall in U.S. inventories was offset by a stronger dollar and a renewed wave of coronavirus cases in Europe that led several countries to reimpose travel restrictions.

Brent crude futures rose 8 cents, or 0.2%, to $41.85 a barrel. West Texas Intermediate crude settled 38 cents, or 0.95%, higher at $40.31 per barrel.

Both benchmarks traded lower earlier in the session.

On Wednesday, prices climbed slightly after government data showed U.S. oil inventories fell last week.

Crude stocks fell by 1.6 million barrels, gasoline by 4 million barrels, and distillate stockpiles posted a surprise drawdown of 3.4 million barrels.

Still, fuel demand in the U.S. is subdued as the pandemic limits travel. The four-week average of gasoline demand was 8.5 million barrels per day (bpd) last week, the government data showed, down 9% from a year earlier.

"The current economic and oil backdrop is anything but encouraging and this capped the attempted rally," Tamas Varga of oil brokerage PVM said.

The jitters over demand and the economic outlook due to the coronavirus resurgence have spurred a rally in the dollar as investors turned to safer assets, adding pressure on oil prices. A stronger dollar makes oil less attractive to buyers using other currencies.

Prices were also capped by data showing a cooling of U.S. business activity in September, the stalemate in the U.S. Congress over more fiscal stimulus and U.S. Federal Reserve officials flagging concerns about a stalling recovery.

In Europe, Britain, Germany and France imposed new restrictions to stem the spread of the novel coronavirus - all factors affecting fuel demand.

On the supply side, the market remains wary of a resumption of exports from Libya, although it is unclear how quickly it can ramp up volumes.

An oil tanker was loading a crude cargo on Thursday from one of three recently reopened Libyan terminals, with more loadings expected over the coming days.