Oil was down Thursday morning in Asia, as the U.S. Energy Information Administration (EIA) confirmed a surprise build in U.S. crude oil supplies and soaring COVID-19 cases globally dampen the fuel demand outlook. However, the black liquid held on to most of its gains from the previous session over expectations that supplies will remain tight through the end of 2021.
Brent oil futures gained 0.50% to $71.87 by 12:56 AM ET (4:56 AM GMT) after gaining 4.2% during the previous session. WTI futures were up 0.47% to $69.97 after rising 4.6% on Wednesday.
U.S. crude oil supply data from the EIA released on Wednesday showed a build of 2.108 million barrels for the week to Jul. 16. Forecasts prepared by Investing.com had predicted a draw of 4.466 million barrels, while a 7.897-million-barrel build was recorded for the previous week.
Crude oil supply data from the American Petroleum Institute released the day before showed a build of 806,000 barrels.
"Volatility in energy remains elevated as traders grapple with short-term demand weakness from COVID-19 Delta variant concerns and expectations the crude deficits will last till the end of the year," OANDA senior analyst Edward Moya told Reuters.
"Oil will struggle to recoup all of its losses until the trend of new curbs or restrictions starts to ease across Southeast Asia, Australia, and Europe," he added.
However, the EIA data also showed a 121,00-barrel draw in gasoline inventories, an indication that demand remains high amid the summer driving season.
Meanwhile, OPEC+ earlier in the week reached a deal to boost supply by 400,000 barrels per day from August through December 2021. However, the cartel is unlikely to get to the market soon even after the dispute resolution and negotiations to bring back Iranian supply into the market have also been delayed. Therefore, the most relevant risk to market fundamentals remains a deterioration of fuel demand due to new COVID-19 restrictive measures as the number of global cases surge, Citi analysts said in a note.
"Only a really tremendous demand shortfall would tip the market balance into a surplus," the note added.
A separate JPMorgan (NYSE:JPM) note said global demand could average 99.6 million barrels per day (bpd) in August 2021, up by 5.4 mbd from April.