Oil prices extended losses and fell closer toward $68 a barrel today, as data showing an unexpectedly high build up in US oil and products stockpiles reminded traders that oil prices may have run ahead of the demand fundamentals.
Crude oil prices fell nearly 4 per cent in the previous session and are on track to shed about 5 per cent this week, as demand concerns resurface.
US crude for November delivery fell 63 cents to $68.34 a barrel by 0512 GMT, after settling down $2.79 yesterday.
London Brent crude fell 55 cents to $67.44 a barrel.
"A few factors were at play last night and the most notable was the US inventories number and that was unambiguously bearish," said Toby Hassall, a commodities analyst at CWA Pty Ltd in Sydney.
A bounce in the US dollar and a weak equities market also also combined to exacerbate oil's fall yesterday.
"The market has been very well supported by the recent economic optimism and the falling dollar, but the latest EIA numbers show there's that underlying downside risk for the oil market," Mr Hassall said.
The US Energy Information Administration reported commercial stockpiles of crude rose 2.8 million barrels in the week to September 18th, against analysts' expectations of 1.5 million barrels fall.
Gasoline inventories increased by 5.4 million barrels to 213.1 million, and distillates gained 3.0 million to hit a 26-year high of 170.8 million, according to the EIA.
In a sign that oil demand was also struggling in Asia, data showed August crude imports by Japan, the world's third-largest energy consumer, fell 12.4 per cent from a year ago and hit its lowest in 20 years.
Meanwhile, the dollar softened against higher-yielding currencies today as investors shifted their funds away from the greenback on expectations the Federal Reserve will keep interest rate very low for a long time.
The worst global recession since the Great Depression has battered demand in the United States and other big consumer nations, shaving crude prices off record highs near $150 a barrel struck in July 2008 to below $33 a barrel in December.
But with prices having risen about 54 per cent this year to reach a 2009 high of $75 a barrel in August on ebullience about the economic outlook, most analysts feel some convincing evidence of a recovery in global demand is now needed to push oil out of the top of the $68-$75 price range where it has traded in the third quarter.
BNP Paribas also cautioned that a recent string of positive economic data could potentially overstate actual growth as it was hard to distinguish if the rebound in indicators, such as factory output, was merely reinstatement of previously cancelled orders or a genuine return to growth.
"Industrial output is recovering after undershooting final demand but the improving surveys could potentially overstate actual growth as the economy comes back from the lows of Q1 and Q2," BNP's senior analyst, Harry Tchilinguirian, said in a report.
Analysts said investors would keep a keen watch on some key economic data due to be released later today, including weekly US jobless claims number and August home sales data, to get more clues on the pace of recovery in the world's largest energy consumer.
Reuters