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Crude oil rally fades on US inventory build, easing energy supply concerns

Crude oil futures were lower during mid-morning Asian trade Oct. 7 after the build in US crude stocks pushed inventories to a four-week high and as energy supply concerns eased following Russia's announcement to supply record gas volumes to Europe this year.

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At 11:08 am Singapore time (0308 GMT), the ICE December Brent futures contract was down 49 cents/b (0.6%) from the previous close at $80.59/b, while the NYMEX November light sweet crude contract was 76 cents/b (0.98%) lower at $76.67/b.

"Crude prices are falling for a trifecta of reasons with Russian President Putin alleviated Europe's energy supply concerns and the more-than-expected rising of US stockpiles," OANDA's Senior Market Analyst, Edward Moya, said.

According to latest data released by the US Energy Information Administration Oct 6, US commercial crude stocks rose 2.35 million barrels to 420.89 million barrels in the week ended Oct. 1, putting inventories at a four-week high, but still around 7% behind the five-year average. Total motor gasoline inventories increased 3.3 million barrels, while distillate fuel inventories declined by a modest 0.4 million barrels on the week. The build came in above market expectations as the American Petroleum Institute's latest data showed stockpiles were up 951,000 barrels on the week.

"The EIA crude oil inventory report shows the Hurricane Ida impact is mostly gone. Crude production rose 1.8% to 11.3 million b/d, approaching pre-peak hurricane season levels," Moya added.

Meanwhile, European gas rose to record highs before falling sharply after Russia promised to alleviate gas concerns. Russia's President Vladimir Putin said the country is ready to help stabilize global energy markets, and remain a reliable supplier of gas to its customers around the world.

"Gazprom will send more gas via Ukraine than contracted this year, and exports to Europe may reach an all-time high in 2021 if the current pace is maintained," ANZ research analysts said in a daily note Oct 7, adding that the late selloff in gas markets had spread across the wider energy sector, with crude oil also falling sharply.

Elsewhere, sentiment was not helped by reports noting that the US was ready to release emergency oil reserves.

US energy secretary Jennifer Granholm pointed out late Oct. 6 that the Biden administration is mulling a release of emergency oil reserves as one of several options to ease a global energy crisis that has resulted in surging prices for consumers.

"Granholm did not rule out a ban on crude oil exports, while saying the US is doing all it can to address the tight natural gas supplies in Europe and Asia," the ANZ analysts added.