By Nicole Jao
(Reuters) -Oil prices fell 1% on Wednesday after a smaller-than-expected draw in inventories and as concerns about Chinese demand persisted, although losses were limited by supply risks in the Middle East and Libya.
futures fell 90 cents, or 1.13%, to $78.65 a barrel. U.S. West Texas Intermediate crude futures fell $1.01, or 1.34%, to $74.52.
Prices lost more than 2% on Tuesday after rising 7% over the past three days to more than $81 per barrel for Brent and $77 for WTI.
U.S. crude inventories fell by 846,000 barrels to 425.2 million barrels last week, data from the Energy Information Administration showed. This is less than analysts’ expectations in a Reuters poll for a decline of 2.3 million barrels. Refining activity increased during the week.
“It’s a bit surprising to see such a small decline in crude when refining runs have really been so strong, at a six-week high,” said Matt Smith, chief oil analyst at Kpler. “Continued strong imports and lower exports helped contain the decline,” he added.
Concerns about Chinese demand also continued to weigh on prices as recent data pointed to a struggling economy and declining demand for oil from refineries.
“Demand in China remains weak and the expected recovery in the second half has yet to show credible signs of recovery,” Amarpreet Singh, analyst at Barclays, said in a note.
ONGOING DELIVERY RISKS
The potential loss of Libyan oil production and the possible spread of the Israel-Gaza conflict to Iran-backed Hezbollah militants in Lebanon remained the biggest risks for oil markets, limiting price declines on Wednesday.
Several oil fields in Libya have halted production as a dispute continues between rival government factions over control of the central bank and oil revenues. The dispute puts about 1.2 million barrels per day (bpd) of production at risk.
The Libyan disruptions should tighten the oil market as real barrels are removed, but here investors want to see a drop in Libyan crude exports first, said Giovanni Staunovo, an analyst at UBS.
In the Middle East, fighting in the Gaza Strip between Israel and Hamas militants continued, with no signs of a concrete breakthrough in ceasefire negotiations in Cairo.
Last weekend, Israel and Hezbollah bombed each other with rockets across the Lebanese border.
Geopolitical risks will continue to tighten global crude oil prices, said Tim Snyder, chief economist at Matador Economics.
