Oil skids as US inventories pile up

However, demand hopes stem bigger drop in prices

LONDON: Oil prices dropped on Wednesday after US industry data showed a surprise build in crude inventories, but expectations for firmer demand next year kept losses in check.

Brent crude futures dropped $0.38, or 0.57%, to $65.72 a barrel by 0730 GMT. The international benchmark rose 1.2% to $66.10 a barrel on Tuesday.

West Texas Intermediate (WTI) crude futures fell $0.46, or 0.75%, to $60.48 per barrel.

Wednesday's declines followed a gain of more than 1% in the previous session as the "phase one" US-China trade deal announced last week eased pressure on the oil benchmarks.

Prior to the agreement, oil markets were hampered by worries over the economic impact of the trade dispute between the world's two biggest oil consumers.

"The sizzling oil market rally came to a grinding halt after an unexpected climb in the weekly US crude inventory report," said Stephen Innes, market strategist at AxiTrader. However, he added that "it's unlikely to be a game-changer."

"Investors have transcended the trade deal-inspired relief rally euphoria, and are now banking on a fundamental demand-driven shift that could quicken the pace of the oil market rebalancing in the first quarter of 2020."

US crude inventories climbed 4.7 million barrels in the week to December 13 to 452 million, compared with analysts' expectations for a draw of 1.3 million barrels, data from industry group the American Petroleum Institute showed.

But a drop in official inventory data from the US Energy Information Administration (EIA) due later on Wednesday could give oil more upward impetus, said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.

The drop in prices on Wednesday morning "is minuscule, with oil's price action continuing to be constructive," Halley said.

Deeper production cuts coming from the Organisation of the Petroleum Exporting Countries and allies such as Russia - a group known as OPEC+ - also continued to support market sentiment and prevented a further slide in prices.

OPEC+, which has cut production by 1.2 million barrels per day (bpd) since January 1 this year, will make a further oil supply cut of 500,000 bpd from Jan 1, 2020, to support the market.