Crude falls on surprise US inventory build, OPEC uncertainty

Singapore — 0152 GMT: Crude oil futures were lower in mid-morning trade in Asia Dec. 2 following an unexpected build in US crude inventory and amid uncertainty around the outcome of OPEC talks on extending production cuts.

At 9:52 am Singapore time (0152 GMT), February ICE Brent crude futures were down 36 cents/b (0.76%) from the Dec. 1 settle at $47.06/b, while the January NYMEX light sweet crude contract was down 37 cents/b (0.83%) at $44.18/b.

The markers had fallen 0.96% and 1.74%, respectively, Dec. 1 amid uncertainty surrounding an extension of OPEC+ production quotas after the group delayed its meeting to Dec. 3.

OPEC delegates had said the framework of a three-month extension favored by kingpin Saudi Arabia and several other members had been reached, but a deal has been held up by the UAE's insistence that quota-busting countries be required to comply with compensation cuts that have to date been largely unenforced, except on itself.

"The country [UAE] is growing impatient to use new production capacity, as well as trying to launch a new regional oil benchmark contract. The risks of the OPEC+ alliance failing to reach an agreement are high," ANZ analysts said in a report Dec. 2.

"We calculate the market surplus could be as high as 1.5 million-3 million b/d in H1 2021 if it doesn't extend cuts. We suspect OPEC+ will agree to a short extension, with a specific phased return to nominal production levels over the subsequent few months," the ANZ analysts added.

Further weighing on sentiment was an unexpected increase in US crude inventories, which rose 4.15 million barrels in the week ended Nov. 27, weekly inventory data released by the American Petroleum Institute late Dec. 1 showed.

US gasoline stockpiles, often seen as one of the key determinants in gauging overall fuel demand, rose 3.4 million barrels over the same time period.

Analysts surveyed by S&P Global Platts Nov. 30 had expected commercial crude inventories to fall 1.7 million barrels in the week amid an anticipated uptick in refinery demand and steady exports.

"And rubbing salt in the OPEC+ fissures, oil sold off further as US inventories balloon. Analysts penciled their Thanksgiving oil demand guesses on the wrong side of the ledger," Axi chief global market strategist Stephen Innes said in a note Dec. 2.

Market participants will look to the more definitive Energy Information Administration weekly inventory report due for release later Dec. 2 for fresh cues on the supply outlook.