Oil prices ease ahead of data that may show rising U.S. inventories

Oil prices pulled back slightly on Wednesday, as investors awaited fresh data on U.S. crude inventories, which was seen to have increased last week.

According to the American Petroleum Institute, U.S. crude supplies grew by 1.6 million barrels in the week ended July 14. If confirmed, it would be first increase after two weeks of decline.

But API projections weren’t all gloomy, as the firm also expects an over 5 million barrel drop in gasoline stockpiles and a 2.9 million barrel decline in distillates stocks. Gasoline demand in the U.S. usually rises during the summer driving season.

The resilience of the U.S. oil industry has been a concern for the Organization of the Petroleum Exporting Countries, the global oil cartel that controls over 40% of the world’s crude oil. For more than three years, the group has been grappling with low prices as global supply outpaced demand.

Accelerating output from the U.S., where producers are improving their efficiency, has made matters worse. In May, daily U.S. crude production averaged 9.32 million barrel, a 6.3% on-year increase while prices have only risen by $0.85, or 1.2%, compared with the same month last year.

OPEC and Russia have teamed up to pare back their production in hopes of lifting prices, but the results have been mixed. Some analysts, such as Goldman Sachs have called the plan “self-defeating” because any price gains from the cuts would only embolden U.S. producers. However, OPEC members such as Kuwait has said they were confident that, by the time the deal expires next March, the global market would revert to balance.

Many traders are looking to demand growth, especially from China, to mop up the excess oil. In June, China again overtook the U.S. as the world’s biggest oil importer.

But the worries is that China’s current massive crude appetite isn’t sustainable. BMI Research expects China’s refining activities to ease in the second half of the year, as the Chinese economy loses steam amid intensifying efforts to curb financial risks.

Apart from Wednesday’s data release from the U.S. Energy Information Administration, market players will also be eyeing the outcome of an OPEC meeting next Monday, when delegates will discuss the addition of two previously exempted OPEC members — Nigeria and Libya — into the production curtailment plan.