Singapore: Brent crude dipped below $122 a barrel on Wednesday after government data showed US crude stocks rose sharply last week and a broader pullback in commodities markets discouraged risk-taking.
The American Petroleum Institute said crude oil inventories rose by 3.2 million barrels for the week ended 29 April, contrary to analysts’ expectations for a gain of 2 million barrels.
The rise came even as crude imports fell by 1 million barrels per day last week to 8.94 million bpd, according to API data.
“We’re seeing a bit of a sell off in crude because of the US inventories and if the EIA shows rising stockpiles as well that will put further pressure on prices,” said Ben Le Brun, market analyst with CMC Markets in Sydney.
The US Energy Information Administration’s report will be released on Wednesday at 8:00pm.
ICE Brent crude for June fell 70 cents to $121.75 a barrel by 7:35am, near Monday’s low of $121.67 and its third straight session of losses.
US crude lost 71 cents to $110.35.
The market is also weighing official comments that Chinese inflation will moderate in the second half of the year as government measures to curb price rises hit their mark.
Analysts said this suggested further monetary tightening measures were imminent, but the impact on oil prices would likely be muted.
“The oil market has not seen any obvious slowdown despite previous tightening. Chinese oil demand grew at 1 million barrels per day in Q1, slowing down is a healthy move,” said Barclays Capital commodities analyst Yinxi Yu.
Oil prices dropped more than 2% on Tuesday as an interest rate increase by India added to concerns about demand and gains in the dollar helped spark a technical sell-off.
The dollar index , which tracks the greenback against a basket of currencies, edged up 0.1%. The index seesawed as it tried to recover from a three-year low.
A broader sell-off in commodities that dragged equities lower dampened investor appetite for risk-taking, after fear that huge price gains last month had made everything from oil to silver too costly.
“We saw a big pullback in silver and that flowed on to gold, and probably oil as well,” said Le Brun.
From a technical perspective, Brent crude is forecast to fall further to $119.03 per barrel, while US crude futures are headed to $108.00 a barrel, said Reuters market analyst Wang Tao.
Analysts said a fear premium is in place due to ongoing tensions in the oil-producing regions of North Africa and the Middle East and the recent death of al-Qaeda leader Osama bin Laden.
“There’s a $20 premium built in the price due to the Middle East crisis and potential reprisals following bin Laden’s death. That will provide a floor to prices for some time to come,” said Le Brun.
Bin Laden was killed in a US special forces assault on a Pakistani compound, then quickly buried at sea, in a dramatic end to the long manhunt for the al-Qaeda leader who had been the guiding star of global terrorism.
World leaders hailed bin Laden’s death but the euphoria was tempered by fears of retaliation and warnings of renewed vigilance against attacks.
In Libya, there was no let-up in the conflict as fighting between rebels and forces loyal to Moammar Gadhafi forced thousands of refugees to flee western Libya on foot to the Tunisian border and by boat to Europe, the United Nations said on Tuesday.