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Oil prices turned sharply lower Wednesday as the bullish narrative that had buoyed crude futures for the past two sessions—supply disruptions and strong demand—appeared to reverse course for now.
A weaker-than-expected drawdown in crude stockpiles added to the downbeat action in oil futures when the U.S. Energy Information Administration reported that domestic crude supplies declined by 1.351 million barrels for the week ended Aug. 3. Analysts surveyed by The Wall Street Journal had estimated a deeper fall of 2.3 million barrels in the week. Gasoline stockpiles rose by 2.9 million barrels for the week, while distillate stockpiles added 1.2 million barrels, according to the EIA.
On the New York Mercantile Exchange, West Texas Intermediate futures CLU8, -3.76% for September delivery fell $2.36, or 3.4%, to $66.80 a barrel, after settling Tuesday at $69.17, which had marked the highest level for the most-active contract since July 30, according to Dow Jones Market Data.
Wednesday’s trading action now puts WTI at risk of falling to its lowest level since June 21.
Brent crude for October LCOV8, -3.91% the global benchmark, gave up $2.51, or 3.4%, to $72.12 a barrel. Its finish Tuesday at $73.75 a barrel on London’s Intercontinental Exchange was the highest close in more than a week.
Meanwhile, import data from China highlighted a continuing drop in demand from the world’s second-largest economy and one of the biggest importers of crude oil, raising questions about oil’s ability to gain further traction higher after the threat of production slowdowns in Middle East had supported prices.
Reuters reported that China’s crude imports among the lowest of 2018 due to waning demand from the country’s smaller independent, so-called teapot, refineries.
Global markets were also monitoring the escalating trade tensions between the U.S. and China as state-owned Chinese companies looked to replace U.S. crude with alternatives ahead of expected tariffs.
Iran also remains in focus. Iranian Foreign Minister Mohammad Javad Zarif told a local newspaper that sanctions by the U.S. which came into effect on Tuesday against Tehran won’t disrupt the country’s crude exports.“If the Americans want to keep this simplistic and impossible idea in their minds they should also know its consequences,” Zarif reportedly told an Iranian newspaper Wednesday.
Iran is a member of the Organization of the Petroleum Exporting Countries and sanctions imposed by the White House, expected to be rolled out in full over the next 90 days, have the potential of removing some 1 million barrels a day of Iran’s roughly 2.5 million barrels a day of crude exports.
“Iranian tough talk about the U.S. not being able to stop Iran’s oil exports as well as a drop in demand from the Chinese Independent ‘teapot’ refiner added to the pressure after a less-than-impressive API report,” Phil Flynn, senior market analyst at Price Futures Group, told MarketWatch.
The American Petroleum Institute reported late Tuesday that U.S. crude supplies declined by 6 million barrels for the week ended Aug. 3, according to sources. The API data also showed supplies of gasoline gained 3.1 million barrels, while distillate stockpiles added 1.8 million barrels, sources said.
However, the more closely followed EIA failed to confirm that drop and highlighted a buildup in refined products that suggest that the summer driving season, a period of high demand that tends to drive prices higher, has come to an end. That is a bearish factor for prices in the near term.
Matthew Smith, director of commodity research at Clipper Data said the EIA report suggests that “the peak of summer may be behind us here, now.”
Indeed, gasoline futures, sometimes referred to as RBOB by traders, were tumbling, with September gasoline RBU8, -4.61% trading 9.1 cents, or 4.3%, lower at $2.013.
“We may well see RBOB dragging crude lower there,” said Smith.
Among other refined products trading, September heating oil HOU8, -3.05% fell 6 cents, or 2.6% to $2.114 a gallon.
September natural gas NGU18, +1.59% meanwhile, traded 4 cents, or 1.6%, higher at $2.943 per million British thermal units.
—Sarah McFarlane contributed to this article
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