Oil steadies as frail demand outlook tempers US stock drawdown

LONDON: Oil prices steadied on Thursday, as a fall in U.S. inventories last week was tempered by a stronger dollar and a renewed wave of COVID-19 cases in Europe that led several countries to reimpose travel restrictions.

Brent crude futures were up 10 cents, or 0.2%, to $41.87 a barrel by 1100 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose 8 cents, or 0.2%, to $40.01 per barrel.

Both benchmarks traded lower earlier in the session.

On Wednesday, prices climbed slightly after government data showed U.S. oil inventories fell last week.

Crude stocks fell by 1.6 million barrels, gasoline by 4 million barrels, and distillate stockpiles posted a surprise drawdown of 3.4 million barrels.

Still, fuel demand in the U.S. remains subdued as the pandemic limits travel. The four-week average of gasoline demand was 8.5 million barrels per day (bpd) last week, the government data showed, down 9% from a year earlier.

"The current economic and oil backdrop is anything but encouraging and this capped the attempted rally," Tamas Varga of oil brokerage PVM said.

The jitters over demand and economic outlook due to the coronavirus resurgence have spurred a rally in the dollar as investors turned to safer assets, adding pressure on oil prices. A stronger dollar makes oil less attractive to buyers using other currencies.

Prices were also capped by data showing a cooling of U.S. business activity in September, the stalemate in the U.S. Congress over more fiscal stimulus and U.S. Federal Reserve officials flagging concerns about a stalling recovery

In Europe, Britain, Germany and France imposed new restrictions to stem new coronavirus infections - all factors affecting the fuel demand outlook.

On the supply side, the market remains wary of a resumption of exports from Libya, although it is unclear how quickly it can ramp up volumes.