Oil prices fall on fears of sluggish US demand after surprise stockpile build

By Yuka Obayashi

TOKYO (Reuters) – Oil prices fell in early Asian trade on Thursday, with a surprise rise in U.S. inventories fueling fears about sluggish demand from the world’s biggest oil consumer, while worries that a potential expansion of war in Gaza may disrupt supply in the Middle East limited the declines.

Brent crude futures fell 30 cents, or 0.4%, to $84.17 a barrel by 00:28 GMT. West Texas Intermediate crude oil futures lost 32 cents, or 0.4%, to $80.58 per barrel.

Both benchmarks closed slightly higher on Wednesday.

“An expected increase in U.S. crude oil and gasoline stocks is weighing on the market due to fears of weakening demand,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“But the market is in a tug-of-war situation, underpinned by the prospect that an escalation in the battle between Israel and Hezbollah could disrupt supply,” he added.

The US Energy Information Administration (EIA) reported a 3.6 million barrel jump in the country’s crude oil inventories last week, surprising analysts polled by Reuters who had expected a draw of 2.9 million barrels. [EIA/S]

US gasoline stocks also rose by 2.7 million barrels, compared to analysts’ expectations for consumption of 1 million barrels.

Product supplied for automotive gasoline, a proxy for demand, fell by about 417,000 barrels per day last week to 8.97 million bpd. The four-week average for demand is about 2% below last year’s levels.

Ueno said weak consumption despite the peak summer season in the US caused concern among traders.

In the Middle East, cross-border tensions between Israel and Lebanon’s Hezbollah have been rising in recent weeks, fueling fears of an all-out war between Israel and Hezbollah that could draw in other regional powers, including major oil producer Iran.

Turkish President Tayyip Erdogan said his country stands in solidarity with Lebanon and appealed for support from regional countries.

Meanwhile, Israeli forces attacked several areas in Gaza on Wednesday, and residents reported fierce fighting overnight in Rafah, in the southern Palestinian enclave.

(Reporting by Yuka Obayashi; Editing by Jamie Freed)