Oil steadies after 3% drop on demand fears

Oil prices were mostly unchanged in early trade on Wednesday, after sliding 3% in the previous session on worries about demand stalling on potential new lockdowns in top oil importer China as COVID-19 cases rebound.

Brent crude futures rose 2 cents to $95.38 a barrel by 0126 GMT, while U.S. West Texas Intermediate (WTI) crude futures slipped 4 cents to $88.87 a barrel.

Analysts said market sentiment remains split between worries about a recession hitting demand while supply stays tight as a European ban on Russian crude looms and the Organization of the Petroleum Exporting Countries and allies, or OPEC+, cuts output.

“Unless you think we’re heading into a deep recession, I would expect any market weakness will be short-lived,” said Westpac senior economist Justin Smirk.

Industry data showing a bigger-than-expected build in U.S. crude stockpiles kept a lid on gains on Wednesday.

U.S. crude oil inventories rose by about 5.6 million barrels for the week ended Nov. 4, according to market sources citing American Petroleum Institute figures.

By comparison, seven analysts polled by Reuters estimated on average that crude inventories rose by about 1.4 million barrels. [API/S]

Last week the market had latched on to hopes that China might be moving toward easing COVID curbs, but over the weekend health officials said they would stick to their “dynamic-clearing” approach to new infections.

“With that (China reopening) narrative getting pushed back, coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force this morning in Asia,” said Stephen Innes, managing partner at SPI Asset Management.

In another bearish sign, API data showed gasoline inventories rose by about 2.6 million barrels, against analysts’ forecasts for a 1.1 million drawdown.

The market will be looking out for official U.S. inventory data from the Energy Information Administration due at 10:30 a.m. EST (1530 GMT) for a further view on demand in the world’s biggest economy.