Oil prices dipped on Wednesday as analysts cut their forecasts for fuel demand in China following mobility curbs from the spread of the highly infectious Delta variant of the coronavirus, offsetting a bullish outlook for U.S. fuel demand.
U.S. West Texas Intermediate (WTI) crude futures fell 18 cents, or 0.3%, to $68.11 a barrel at 0500 GMT, after a 2.7% jump on Tuesday.
Brent crude futures dropped 16 cents to $70.47 a barrel, following a 2.3% gain on Tuesday.
While both contracts have reclaimed their 100-day daily moving average, a technical chart indicator, they appeared to lack the momentum to stage meaningful revivals as Delta variant fears continued to weigh on markets, said Jeffrey Halley, OANDA's senior market analyst for Asia Pacific.
"Short-term momentum has waned quickly in Asia," he added.
Beijing has imposed travel curbs that will reduce fuel demand in the world's second-largest oil consumer, prompting Goldman Sachs (NYSE:GS) to cut its demand forecast for China by 1 million barrels per day for the next two months.
"Our base case remains that the Delta wave will impact demand – including in China – for only two months, consistent with prior cycles, including most recently in India," the bank said.
Industry data showed U.S. crude oil and gasoline inventories fell last week, while the U.S. Energy Information Administration raised its forecast for fuel demand in 2021 and said consumption in May through July was higher than expected, supporting prices.
U.S. crude stocks fell by 816,00 barrels and gasoline stocks fell by 1.1 million barrels in the week ended Aug. 6, according to two market sources, citing data from the American Petroleum Institute. Both drawdowns were a bit smaller than analysts polled by Reuters had expected.
Weekly figures from the EIA are due on Wednesday.
The EIA's monthly report showed that the need for supply from the Organization of the Petroleum Exporting Countries (OPEC) will exceed OPEC supply by 1 million barrels per day in the third quarter and by 300,000 bpd in the fourth quarter of 2021, Commonwealth Bank commodity analyst Vivek Dhar said in a note.
"With OECD commercial crude oil stockpiles having dropped back to pre‑COVID levels already, a tightening oil market outlook will likely amplify oil price gains," he said.