Market Analysis

Oil Eases as Stock Build Raises Concerns of Slower US Demand

Amos Simanungkalit · 27 Jun5.3K Views

Oil prices dipped on Thursday due to an unexpected rise in U.S. stockpiles, heightening concerns about reduced demand from the world's largest oil consumer. However, declines were tempered by apprehensions that the Gaza conflict might escalate, potentially disrupting Middle East supplies.

Brent crude oil futures fell by 6 cents, or 0.1%, to $85.19 a barrel as of 0635 GMT. U.S. West Texas Intermediate (WTI) crude futures decreased by 10 cents, or 0.1%, to $80.80 per barrel. Both benchmarks had settled slightly higher on Wednesday.

"An anticipated increase in U.S. inventories of crude oil and gasoline 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 may hinder supply," he added.

The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel increase in the country's crude oil stocks last week, surprising analysts polled by Reuters who had expected a 2.9 million-barrel drawdown. U.S. gasoline stocks also rose by 2.7 million barrels, compared to analysts' expectations for a 1 million-barrel decrease.

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

"We believe the market's upside is limited by weak U.S. gasoline demand despite the peak summer driving season kicking in," said Emril Jamil, a senior analyst at LSEG Oil Research. Gasoline margins, reflected by the crack spread between gasoline to Brent and WTI, have trended lower after peaking in March at the $30s-per-barrel range, Jamil noted. "This weakness is further compounded by sluggish diesel demand both in Europe and the U.S., with margins falling since last August," he added.

Meanwhile, fears of the Gaza war spreading to Lebanon have limited price declines. In the Middle East, tensions between Israel and Lebanon's Hezbollah have been escalating, stoking fears of a broader Israel-Hezbollah conflict that could involve other regional powers, including major oil producer Iran. Turkish President Tayyip Erdogan expressed solidarity with Lebanon and called for regional support. Israeli forces targeted multiple areas in Gaza on Wednesday, with residents reporting intense fighting overnight in Rafah, located in the southern part of the Palestinian enclave.