Crude oil futures stepped back from multi-years highs in mid-morning trade in Asia Oct. 20 following an increase in US crude inventories, but the underlying market sentiment remained firm amid continuing global undersupply.
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At 11:28 am Singapore time (0328 GMT), the ICE December Brent futures contract was down 52 cents/b (0.61%) from the previous close at $84.56/b, while the NYMEX November light sweet crude contract fell 52 cents/b (0.63%) at $82.44/b.
The decline in prices came after both the contracts touched multi-year highs in the previous session. The front-month ICE Brent contract climbed to a three-year high while the front-month NYMEX crude contract touched seven-year highs on Oct. 19.
"While the ongoing global energy crunch is still largely present, oil prices pared back some gains this morning as further increase in US crude inventories for the fourth consecutive week may drive some expectations that the supply-demand outlook is not as tight as expected," IG Market Strategist Yeap Jun Rong told S&P Global Platts on Oct. 20.
US crude inventories rose by 3.3 million barrels for the week ended Oct. 15, the American Petroleum Institute said in a weekly report late Oct. 19, compared with a build of 5.2 million barrels reported by the API for the previous week. Economists were expecting a build of about 2.2 million barrels for the Oct. 15 week.
The API data also showed that gasoline inventories fell by about 3.5 million in the week, and distillate stocks declined by about 3.0 million barrels.
Despite the stock build, Yeap added that the uptrend in crude oil remains intact for now and that the focus is on the winter season, when demand is expected to pick up.
Some analysts also pointed out that the ongoing tightness in the market amid the global energy crunch continues to support oil market sentiment.
"The energy crisis continues to spread across geographies and markets. European gas prices are rising again, reflecting an erosion of hopes that Russian exports will increase in time for this winter," TD securities analysts said in a note.
According to Platts Analytics, globally about 200,000 b/d of oil is replacing gas as a refinery fuel, noting that low sulfur crudes used in power generation are also growing in popularity. Gas-to-oil switching across all sectors of the economy could be 500,000-to-1 million b/d of new demand, according to analysts.
The market will now be focused on the US Energy Information Administration's weekly stock report due for release later Oct. 20 for more pricing cues.