Oil prices reversed course to edge lower on Wednesday as a higher than expected rise in U.S. inventories refocused investors on the risk of oversupply amid a coronavirus-driven slump in fuel demand. U.S. West Texas Intermediate (WTI) crude futures fell 27 cents, or 1.1%, to $24.29 a barrel by 0436 GMT, snapping a five-day winning streak. Brent crude futures dipped 20 cents, or 0.7%, to $30.77 a barrel, ending a six-day rise.
Oil slipped after a report showed U.S. crude inventories rose 8.4 million barrels last week, more than expected, according to data from the American Petroleum Institute(API) late on Tuesday. Oil prices had gained recently as European and Asian countries ended lockdowns aimed at halting the coronavirus spread and as producers axed supply after the demand crunch. But analysts cautioned the rebalancing of the market would be choppy.
"We're talking about normalisation of supply and demand but we've got a long way to go," said Lachlan Shaw, National Australia Bank's head of commodity strategy. South Korea's SK Innovation, owner of top refiner SK Energy, said on Wednesday it expected second-quarter refining margins to come under pressure because of a slump in fuel demand and a glut of refined products due to the pandemic.
Analysts also pointed to comments by U.S. shale producer Diamondback Energy saying it would consider reviving drilling plans if WTI held above $30 a barrel as a sign that producers will not want to shut in production for long. "When (prices) start to hold on to those gains, there'll be a point where producers start to reverse those well shut-ins," Shaw said.
Global inventories are still expected to reach potential storage limits by June, according to Chris Midgley, Global Director of Analytics of S&P Global Platts. Gasoline stocks in the U.S., the world's biggest producer and consumer of oil, fell by 2.2 million barrels, API reported, compared with analysts' expectations in a Reuters poll for a 43,000 barrel increase, and refinery crude runs rose.
Traders will be looking for further confirmation of the inventory data when the Energy Information Administration comes out later on Wednesday.