Saudis limit losses after U.S. inventories rise unexpectedly

Oil prices dipped on Wednesday as data revealed a larger-than-anticipated increase in U.S. crude inventories last week. However, evidence of robust gasoline demand and Saudi Arabian caution over tightening supplies limited losses.

The American Petroleum Institute (API) reported on Tuesday that U.S. oil inventories grew by 4.5 million barrels in the week ending October 21, above expectations of a 200,000 barrel gain.

The outcome likely reflects the depletion of the Strategic Petroleum Reserve (SPR), but it also signals an imminent oil supply excess, which is negative for prices.

Last week, U.S. oil stockpiles are expected to have grown by 1 million barrels, according to a forthcoming government report.

Brent Oil Futures traded in London lost 0.7% to $91.09 per barrel at 22:09 ET, while West Texas Intermediate crude futures declined 0.5% to $84.86 per barrel (02:09 GMT). On Tuesday, both contracts exhibited modest rises.

After a series of weaker-than-anticipated industrial data fuelled fears of a decline in fuel consumption, commodity markets registered a gloomy start to the week. China, the world's largest importer of crude oil, has experienced a dramatic decline in oil imports this year, according to Chinese data.

Fears of declining demand and surging U.S. output precipitated a sharp decline in oil prices from their annual peaks. In recent weeks, the Organization of Petroleum Exporting Countries and its allies (OPEC+) have curtailed supplies, leading prices to rise.

Moreover, gasoline inventories decreased significantly last week, per API data issued on Tuesday, showing that demand for U.S. fuel remained stable. The Energy Information Administration of the United States stated that gasoline inventories in the United States reached their lowest level in eight years as of mid-October.

Energy Minister Abdulaziz bin Salman of Saudi Arabia cautioned that the release of SPR supplies by the United States would result in increased hardship in the coming months, hence strengthening crude prices. The Biden administration has threatened to release additional oil from the Strategic Petroleum Reserve in response to the OPEC+ production cut (SPR).

Political adversaries of Biden have highlighted the fact that the SPR is at its lowest level since 1984. Although the U.S. government has announced its intention to replenish the SPR, it will not do so until oil prices fall significantly below their current levels.

Given that OPEC+ has warned of additional production cuts to sustain high prices, it is unlikely that this scenario would occur in the near future. Additional sanctions against Russia may also reduce oil availability.