Oil steadies near $42, US inventories in view

LONDON: Oil steadied on Wednesday, trading close to $42 a barrel, with a report that US crude inventories unexpectedly rose capping prices and as growing numbers of coronavirus cases around the world raised concern of stalling demand.

The American Petroleum Institute, an industry group, said crude inventories rose by 691,000 barrels rather than falling as analysts forecast.

Official inventory numbers from the Energy Information Administration are due at 1430 GMT.

"Sentiment remains fragile," said Jeffrey Halley, analyst at broker OANDA.

"Inventories are expected to fall by 2.3 million barrels. A surprise increase could well be enough to initiate another downward leg in crude prices."

Brent crude rose 23 cents or 0.6% to $41.95 by 0945 GMT, reversing an earlier drop. US West Texas Intermediate crude was up 13 cents or 0.3% at $39.93. Both contracts fell more than 4% on Monday, though they rose on Tuesday.

"Oil prices are still faring comparatively well today given all the headwinds they are facing - a firm US dollar, concerns about demand, rising supply," said Carsten Fritsch of Commerzbank.

Surging infections in countries including India, France and Spain and new restrictions in Britain have renewed worries about demand, just as more supply may come from Libya. In the United States, the COVID-19 death toll has passed 200,000.

Oil collapsed as the pandemic decimated demand, with Brent falling below $16, a 21-year low, in April.

A record output cut by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, has helped revive prices.

OPEC faces a new challenge in that Libya, an OPEC member exempt from the supply cut, is aiming to boost supply after an easing of the country's conflict. Still, previous recoveries have not lasted.

"The road to recovery will be long and bumpy," said Stephen Brennock of broker PVM.