What was seen as a multi-day streak of gains in the oil sector ended in prices crash on Wednesday after the United States’ crude inventories rose beyond expectation, courtesy of the demand slump.
The US West Texas Intermediate (WTI) crude futures fell as much as 2.1% to $24.05 a barrel and were down 14 cents at $24.41 a barrel at 0201 GMT, while WTI snapped a five-day winning streak.
Brent crude futures were flat at $30.97 a barrel and prices climbed 13.9% in the previous session, part of a six-day rise.
Investors may be hesitant to increase their purchases of Brent as the contract has climbed too much over the past streak.
Brent’s relative strength index, a technical measure used to track the future’s trading momentum, was at 72.93 on Wednesday, indicating it was overbought after the recent gains.
WTI also slipped after a report showed that the US crude inventories rose 8.4 million barrels last week, more than expected, according to data from the American Petroleum Institute late on Tuesday.
Oil prices had gained recently as European and Asian countries had ended their lockdowns to halt the coronavirus spread and as producers had axed supply after the demand crunch.
But analysts cautioned the rebalancing of the market would be choppy.
“We’re talking about normalization of supply and demand but we’ve got a long way to go,” said Lachlan Shaw, National Australia Bank’s head of commodity strategy.
“There are a lot of supply cuts that have come through. That combined with some early signs of demand lifting has meant the rate of inventory build is slowing.”
But analysts also pointed to comments by the US shale producer Diamondback Energy saying it will consider reviving drilling plans if WTI held above $30 a barrel as a sign that producers will not want to shut in production for long.
“When (prices) start to hold on to those gains, there’ll be a point where producers start to reverse those well shut-ins,” Shaw said.
Gasoline stocks in the US, the world’s biggest producer and consumer of oil, fell by 2.2 million barrels, API reported, compared with analysts’ expectations in a Reuters poll for a 43,000 barrel increase, and refinery crude runs rose.
Traders will be looking for further confirmation of the inventory data when the Energy Information Administration comes out later on Wednesday.