Oil dips on China plan to tap reserves, small U.S. crude draw

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FILE PHOTO: A pump jack used to help lift crude oil from a well in South Texas

By Scott DiSavino

NEW YORK (Reuters) – Oil prices eased on Thursday on China’s plan to release state oil reserves to reduce pressure on domestic refiners and a smaller than expected U.S. weekly crude draw.

Traders said losses were limited by the slow return of U.S. output after Hurricane Ida and higher than expected U.S. gasoline demand.

Brent futures fell 27 cents, or 0.4%, to $72.33 a barrel by 12:38 p.m. EDT (1638 GMT). U.S. West Texas Intermediate (WTI) crude fell 29 cents, or 0.4%, to $69.01.

China’s state reserves administration said it would release crude reserves to the market in phases via public auction to ease pressure of high costs on domestic refiners.

“The oil market is in deficit but this China story could disrupt it staying in deficit for the rest of the year,” said Edward Moya, senior market analyst at OANDA.

The U.S. Energy Information Administration (EIA) said crude stockpiles declined just 1.5 million barrels in the week to Sept. 3, much less than the 4.6-million barrel draw analysts forecast in a Reuters poll.

The much bigger than expected 7.2 million barrel drop in weekly gasoline inventories supported oil prices. Analysts forecast gasoline stocks would decline by just 3.4 million barrels last week.

“The gasoline demand number is sky high and that has been the pattern all season,” said John Kilduff, partner at Again Capital LLC in New York, noting “These are unbelievable numbers for this time of year.”

U.S. production, meanwhile, fell from 11.5 million barrels per day (bpd) in the week to Aug. 27 to 10.0 million bpd during the week ended Sept. 3 due to ongoing output declines in the Gulf of Mexico area from Hurricane Ida.

Royal Dutch Shell Plc declared force majeure on several contracts due to damage to offshore facilities in the Gulf of Mexico after Ida.

The Gulf’s offshore wells account for about 17% of U.S. output. Some 1.4 million bpd of crude production was still shut-in.

Prices were also pressured by the EIA on Wednesday cutting its 2021 global oil demand growth forecast.

In other U.S. news, the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, more evidence of labor shortages.

With U.S. COVID-19 cases surging among the unvaccinated, President Joe Biden will outline new approaches to control the pandemic in a speech on Thursday, including a requirement that all federal employees get vaccinated.

(Additional reporting by Noah Browning in London, Naveen Thukral in Singapore and Laura Sanicola in New York; Editing by David Goodman, Mark Potter and David Gregorio)

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