Investing.com - Oil prices pared gains on Wednesday after a set of bearish U.S. inventory data dampened earlier buying enthusiasm.
Investing.com senior commodity analyst Barani Krishnan pointed out that the weekly report from the Energy Information Administration showed a crude draw that was just within a third of expectations, while gasoline stockpiles fell less than forecast and distillates registered a surprise build.
“This dataset certainly doesn’t look very good for the bulls in a week where serious questions are already being raised about oil demand despite the hype over extended OPEC cuts,” Krishnan said.
U.S. crude prices pared gains after the report, rising 0.2% to $56.36 a barrel by 11:18 AM ET (15:18 GMT), compared to $56.98 prior to the publication.
London-traded Brent crude futures traded up 1% to $62.99 a barrel, compared to $63.41 ahead of the release.
“Not surprisingly, the market’s given back its lofty gains from the session highs,” Krishnan said.
Oil had been on the rise before the publication on the back of the American Petroleum Institute’s separate report, released late Tuesday, that inventories fell by a larger 5 million barrels last week.
Even though oil markets found some respite from a trade truce between the U.S. and China over the weekend, analysts warned that the global economy, and thus demand for crude, remained at risk until a deal was actually signed.
Furthermore, U.S. crude ended down nearly 4.8% on Tuesday despite the fact that all OPEC and non-OPEC members including Russia voted unanimously to pass the nine-month extension of their agreement to cut production.
“While the market reaction to OPEC’s decision was muted in part because the decision was already expected, the truth is that the market knows OPEC’s quotas are not significantly impacting oil supply,” Ellen Wald, president of Transversal Consulting and Investing.com contributor, said.
Wald explained that there is nothing OPEC can do to counteract rising U.S. production and “the relatively minor production fluctuations that OPEC is capable of creating at this point are not determinative”.
Analysts at Morgan Stanley expressed a similar opinion as it lowered its price forecast for Brent oil ahead of the EIA report on Wednesday.
“OPEC cuts can be very effective when they smooth over relatively temporary imbalances in supply and demand,” they said. “However, when they become multi-year transfers of market share, history shows that they are usually associated with oil price weakness rather than oil price strength."