Oil Near $57 as U.S. Fuel Stockpile Gain Feeds Demand Fears

(Bloomberg) -- Oil traded near a two-week low as an increase in U.S. fuel stockpiles heightened fears that demand is waning in the world’s biggest crude consumer.

Futures were up 0.2% in New York after dropping 1.5% on Wednesday. American gasoline and distillates inventories rose by a combined 9.25 million barrels last week, according to government data, well above expectations of analysts surveyed by Bloomberg. Crude supplies did fall more than forecast, driven in part by output halts in the Gulf of Mexico due to storm Barry.

Oil has lost 5% this week as the specter of a renewed U.S-China trade conflict and stuttering American consumption dent the demand outlook. Still, the possibility of crude flows being disrupted from the Middle East remains after Iran’s Foreign Minister Mohammad Javad Zarif damped the prospect of the OPEC producer opening talks with the Trump administration. Washington “shot itself in the foot” by pulling out of the nuclear accord, he said.

“Although the lows seen in June in the oil market are still far away the sentiment has firmly soured in the past few days,” PVM Oil Associates analyst Tamas Varga wrote in a report. “If you take the three main product categories – distillates, gasoline and ‘other products’- you will end up with a brutal combined build.”

West Texas Intermediate for August delivery rose 10 cents to $56.88 on the New York Mercantile Exchange as of 10:35 a.m. in London, after its lowest close since July 2 on Wednesday. September Brent rose 23 cents to $63.89 a barrel on the ICE Futures Europe Exchange. The global benchmark crude traded at a premium of $6.86 to WTI for the same month.

U.S. gasoline stockpiles increased by 3.57 million barrels last week, rising for the first time in five weeks, according to Energy Information Administration data Wednesday. The median estimate in the survey forecast a 2.4 million-barrel drop. Distillate inventories rose by 5.69 million barrels, while crude supplies fell by 3.12 million barrels.

Iran is capable of shutting the Strait of Hormuz -- a crucial choke-point for oil flows -- but doesn’t want to do it because the waterway and the Persian Gulf are its lifeline, Zarif said Wednesday in an interview with Bloomberg Television in New York.

--With assistance from James Thornhill.

To contact the reporters on this story: Sharon Cho in Singapore at ccho28@bloomberg.net;Alex Longley in London at alongley@bloomberg.net

To contact the editors responsible for this story: Serene Cheong at scheong20@bloomberg.net, Christopher Sell, Amanda Jordan

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