Oil prices fell early on Wednesday as an unexpected build in U.S. crude stocks weighed on markets, along with concerns that Chinese crude demand could falter as Beijing clamps down on alleged tax evasion in the oil industry.
International Brent crude oil futures were trading at $49.57 a barrel at 0054 GMT, down 39 cents, or 0.8 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude was down 46 cents, or 1 percent, at $47.64 a barrel.
Robust Chinese crude demand growth has been driven by independent refiners, also know as teapots, who began to import crude last June after obtaining government crude import quotas and licences.
But Beijing’s crackdown on alleged tax evasion in the oil industry, targetting the teapots, threatens to put a lid on Chinese demand.
“The question now is whether the teapots will start cutting runs,” a Singapore-based trader said, adding that falling Chinese demand would be a double whammy for the oversupplied crude market.
Reinforcing concerns about market oversupply, U.S. crude stocks surprisingly rose last week, even though gasoline inventories fell sharply and distillate stocks drew, data from industry group the American Petroleum Institute showed on Tuesday.
“We are seeing a little reaction on the API data which has posted higher inventories,” said Ric Spooner, chief market analyst at CMC Markets.
Crude prices had risen on Tuesday after Reuters reported that Iran was sending positive signals that it could support joint action to prop up the oil market.
But analysts and traders remain sceptical that producers will come to an agreement at a meeting in Algeria next month as various OPEC members continue to have individual agendas to push.
Iraq’s prime minister said on Tuesday the country had not yet reached its full oil market share, suggesting his government would not restrain crude output as part of any possible OPEC agreement to lift prices.
“I really can’t see the sense for Saudi, in particular, to actually have some meaningful constraint on production because there is quite a lot of capacity of U.S. shale to come on quite quickly,” Spooner said, adding that he could see prices drifting closer to $45 a barrel over the next few days.