Oil Drops as China Concern and Inventory Estimate Hurt Outlook

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(Bloomberg) — Oil fell for a second day as traders weighed the outlook for demand in China and a US industry report pointed to a build in stockpiles, with crude joining a broad move lower among commodities including copper.

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West Texas Intermediate dropped toward $70 a barrel after losing 0.4% on Tuesday. Some banks cut forecasts for China’s growth this year after weak April data, although the International Energy Agency remains upbeat on the Asian nation’s demand prospects following the end of Covid curbs.

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The industry-funded American Petroleum Institute reported nationwide crude inventories rose by 3.7 million barrels last week, as stockpiles built at the key hub at Cushing, Oklahoma, according to people familiar with the figures. Still, the breakdown also showed countrywide gasoline and distillate holdings fell.

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Crude is down about 12% this year as China’s slower-than-expected recovery, a campaign of aggressive monetary tightening from the Federal Reserve, and more recent concerns over the US debt ceiling weigh on the outlook. Still, US retail sales rose in April, suggesting that consumer spending in the world’s biggest economy is holding up in the face of economic headwinds. 

China’s poor manufacturing performance “may impede, if not chronically impair, prospects of restoration to pre-Covid strength,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. in Singapore. It should not be “dismissed as a passing headwind,” he added.

Oil’s retreat on Wednesday came as other raw materials fell, with key industrial metal copper also edging lower.