Oil Prices Plunge 3% On U.S. Inventory Build, China COVID Worries

Oil prices sank by roughly $3 a barrel on Wednesday after industry data showed that U.S. crude stockpiles rose more than expected and on concerns that a rebound in COVID-19 cases in top importer China would hurt fuel demand.

Brent crude futures settled at $92.65 a barrel, shedding $2.71, or 2.8%, while U.S. West Texas Intermediate (WTI) crude futures settled at $85.83 a barrel, dropping $3.08, 3.5%. The benchmarks fell around 3% on Tuesday.

U.S. crude in storage jumped by 3.9 million barrels last week to 440.8 million barrels as oil production increased to about 12.1 million barrels a day, U.S. Energy Information Administration data showed. Analysts in a Reuters poll had expected a stockpile rise of 1.4 million barrels.

"The report was once again mixed but tilted towards bearish, with the crude oil build and the jump in domestic production," said John Kilduff, partner at Again Capital LLC in New York.

U.S. gasoline stocks were down by 900,000 barrels in the week to 205.7 million barrels, the EIA said, compared with analysts' expectations in a Reuters poll for a drop of 1.1 million barrels. ​Distillate stockpiles, which include diesel and heating oil, fell by about 500,000 barrels, a smaller-than-expected decline.

"Adding to downside pressure is the continued concerns over the future Chinese economic growth path that could prompt adjustment of global oil demand views," Jim Ritterbusch, of Ritterbusch and Associates, said in a note.

Last week, the market had latched onto hopes that China might be moving toward relaxing COVID-19 restrictions, but over the weekend health officials said they would stick to their "dynamic-clearing" approach to new infections.

COVID-19 cases in Guangzhou and other Chinese cities have surged, with millions of residents of the global manufacturing hub being required to have COVID-19 tests on Wednesday.

"With that (China reopening) narrative getting pushed back, coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force this morning in Asia," Stephen Innes, managing partner at SPI Asset Management, said in a note.

A stronger U.S. dollar, which makes oil more expensive for buyers in other currencies, also weighed on crude prices. The dollar advanced against several major currencies as results so far for the U.S. midterm elections on Tuesday dispelled notions of a resounding Republican victory.

Meanwhile, supply concerns remain.

The European Union will ban Russian crude imports by Dec. 5 and Russian oil products by Feb. 5, in retaliation for Russia's invasion of Ukraine.

(Additional reporting by Noah Browning in London, Sonali Paul in Melbourne and Isabel Kua in Singapore; Editing by Paul Simao, Bernadette Baum and Josie Kao)