By Katya Golubkova
TOKYO (Reuters) – Oil prices retreated slightly on Thursday on worries over softening U.S. demand and broad oversupply risks, but losses were limited by concerns over attacks in the Middle East and Russia’s war in Ukraine.
Brent crude futures were down 11 cents, or 0.16%, at $67.38 a barrel by 0618 GMT, and U.S. West Texas Intermediate crude futures lost 13 cents, or 0.2%, to $63.54.
The benchmark contracts gained more than $1 each on Wednesday following Israel’s attack on Hamas leadership in Qatar the day before, and as Poland scrambled its own and NATO air defences to shoot down suspected Russian drones that had strayed into its airspace during an attack on western Ukraine.
The gains were a continuation of an upward trend for oil prices for much of this month after they hit a three-month low on September 5.
That said, analysts said neither event held any immediate risk of disruption to oil supplies, and market attention has turned to supply-and-demand balances, with rising oil stocks, falling producer prices and a slowing labour market pointing to a softening U.S. economy.
Oil prices were pressured by profit-taking after a three-day rally and an increase in U.S. inventories, which exacerbated oversupply concerns after the end of the U.S. summer driving season, said Tony Sycamore, a market analyst with IG.
“Additionally, traders are taking a more cautious stance ahead of the upcoming U.S. inflation report (later on Thursday), with expectations of more significant Federal Reserve rate cuts already factored in, which could be unsettled by a warmer than expected CPI report,” he said by email.
U.S. crude inventories rose by 3.9 million barrels in the week to September 5, the Energy Information Administration said, against expectations of a draw of 1 million barrels. Gasoline stocks also rose, adding 1.5 million barrels, against expectations of a draw of 200,000 barrels. [EIA/S]
The softer economy has meant that the U.S. Federal Reserve is expected to cut interest rates next week.
“Easing labour market conditions mean the FOMC is set to vote for a 25bp cut next week … although a rare triple dissent in favour of a 50bp move could steal the headlines,” Stephen Brown, deputy chief economist for North America at Capital Economics, said in a note.
The European Central Bank, meanwhile, is set to leave its interest rates unchanged on Thursday.
On the supply side, the Organization of the Petroleum Exporting Countries and allies, collectively known as OPEC+, on Sunday decided to raise production from October.
While the increases are smaller than previous months and some expectations, the move adds to the oil market weakness. Oil prices are set to drop significantly in the months ahead as rising output will lead to large inventory builds, the EIA said this week.
“Despite lower trending prices and stagnating oil demand growth, oil producers – led by OPEC+ – have been adding barrels, suggesting an imbalance is likely to form by the end of 2025 that will push the market into oversupply and drive crude prices even lower,” Eurasia Group consultancy said in a note.
(Reporting by Katya Golubkova in Tokyo; Editing by Tom Hogue, Edwina Gibbs and Kim Coghill)
