Oil drops more than 2pc on US inventories build, demand worries

NEW YORK: Oil futures tumbled more than 2% on Wednesday as an unexpected build in U.S. crude stockpiles compounded investor worries that a prolonged trade fight between Washington and Beijing could dent crude demand.

Brent crude futures shed $1.58 a barrel, or 2.2%, to $70.60 a barrel by 1:18 p.m. EDT (1718 GMT). U.S. West Texas Intermediate (WTI) crude futures dropped $2.03 a barrel, or 3.2%, to $61.10 a barrel.

U.S. crude inventories swelled by 4.7 million barrels in the week to May 17 to their highest in  nearly two years, the U.S. Energy Information Administration reported. Analysts polled by Reuters had forecast a decrease of 599,000 barrels.

"It's at the extreme end of the range of possibilities for a bearish report," said Bob Yawger, director of futures at Mizuho in New York. "It's about as bad as it could have been considering the fact that driving season is so close."

Gasoline stocks posted a surprise build as well, rising by 3.7 million barrels compared with analysts' expectations for an 816,000-barrel drop.

Weaker-than-normal refinery output for this season contributed to the builds.

"Despite a chunky drop in imports, refinery runs below year-ago levels have encouraged a fifth consecutive build to crude inventories... in the last nine weeks," said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.

The prospect of a long-term tariff war between China and the United States also pressured prices. No further talks between top officials have been scheduled since the last round ended in a stalemate on May 10.

U.S. Treasury Secretary Steven Mnuchin said Washington is at least a month from enacting its proposed tariffs on $300 billion in Chinese imports as it studies the impact on consumers.

The conflict is weighing on economic growth forecasts and oil demand predictions. The Organization for Economic Co-Operation and Development (OECD) on Tuesday revised down its global growth forecast for the year.

Growing tensions between the United States and Iran, which could lead to supply disruptions, helped limit losses.

The prospect that the Organization of the Petroleum Exporting Countries and its allies will continue its output cut pact later in the year was also supportive.

Saudi Arabia, OPEC's de facto leader, said it was committed to a balanced and sustainable oil market.

U.S. bank Morgan Stanley said it expected Brent prices to trade in a $75-$80 per barrel range in the second-half of this year, pushed up by tight supply and demand fundamentals.