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Crude oil futures dip on large US products build

0238 GMT: Crude oil futures slipped during midmorning trade in Asia June 10 on the back of a large build in US product inventories, which cast a shadow of doubt on the optimism surrounding summer driving demand in the region.

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At 10:38 am Singapore time (0238 GMT), the ICE August Brent futures contract was down 65 cents/b (0.90%) from the previous settle at $71.57/b while the NYMEX July light sweet crude contract was down 61 cents/b (0.87%) at $69.35/b.

The Energy Information Administration reported a 5.2 million-barrel draw in US crude oil inventories in the week ended June 4 amid high refining run rates, but market sentiment was bogged down by a large build of 7 million barrels in gasoline stocks and a 4.4 million-barrel build in distillate inventories over the same period.

In the week ended May 28, US gasoline inventories had risen 1.5 million barrels while distillate inventories increased by 3.7 million barrels, according to EIA data.

"Refiners are pumping out a lot of fuel, operating at 91.3% of their operable capacity. The pickup in crude demand has been solid over the past month, but this week showed a little dip," said Edward Moya, senior market analyst at OANDA, in a June 10 note. "The headline draw of 5.2 million barrels, greater than the expected decline of 2.9 million barrels, but everyone seemed to focus on the surprising massive builds with gasoline and distillate inventories."

The build in gasoline inventories reflected that bullish market expectations after the Memorial Day weekend -- typically signaling the start of summer driving season -- did not materialize.

"Crude oil fell following signs of weaker demand ... markets had been optimistic on demand as the US enters the peak summer driving season," analysts at ANZ said in a June 10 note.

They said the EIA report showed that weekly gasoline supplied, a proxy for demand, recorded its biggest decline since February, adding to the bearish demand cues.

However, analysts said the long-term outlook for crude oil remains supported by strengthening fundamentals as economies across the world embark on a rocky path toward a vaccine-led demand recovery.

"Green shoots are emerging in some of the Covid-19 ravage[d] countries as indicated by better economic activity and availability of vaccines," said Avtar Sandu, senior commodities manager at Phillips Futures, in a June 10 note.

The market awaited the OPEC's and the International Energy Agency's June Oil Market Reports, due to be released later June 10 and June 11, respectively, for fresh pricing cues.