Oil futures slipped 1% on Friday, with prices on both sides of the Atlantic heading for their biggest weekly drops since June, as lacklustre demand and ample fuel supplies offset support from a weaker dollar.
U.S. West Texas Intermediate was at $40.80 a barrel, down 51 cents and set for its first weekly drop in five weeks.
Brent crude fell 44 cents to $43.63 a barrel.
The volume of crude arriving in China, the world’s largest crude importer, is set to slow in September after rising for five straight months as its refiners gradually digest bloated inventories, according to data on Refinitiv Eikon.
In the United States, refiners awash in diesel inventory are unlikely to boost output soon.
“Soft margins are likely to cap further crude rallies and we anticipate further run cuts this fall to expedite the rebalancing of product stocks,” RBC Capital analyst Mike Tran said in a note.
Production cuts led U.S. gasoline inventories to fall at a “manic” pace in the past two months, even though U.S. mobility indicators suggest that driving patterns have largely plateaued over the past 6-8 weeks, he added.
Middle distillates inventories at Asia’s oil hub Singapore have also soared above a 9-year high.
FGE analysts said rising coronavirus cases worldwide and renewed lockdowns would dash hopes of a drawdown in oil stocks for some time. The pressure remains on refiners to keep operating rates low, FGE said.