Oil prices edged down on Wednesday, pressured by global central bank efforts to tame inflation and ahead of expected builds in US crude inventories as product demand weakens.
Brent crude prices for September fell 37 cents, or 0.3 percent, to $106.98 a barrel, while US West Texas Intermediate (WTI) crude for August slipped 69 cents, or 0.7 percent, to $103.53 per barrel. The WTI contract will expire later on Wednesday.
The more active September WTI contract was at $100.24 a barrel, down 50 cents.
Oil prices whipsawed in the previous session, caught in a tug-of-war between supply fears due to Western sanctions on Russia and pressures on indications from central bankers that they will raise interest rates to combat inflation.
Both contracts settled about 1 percent higher on Tuesday on tight supplies globally which have also kept the prompt Brent intermonth spreads in wide backwardation at about $4.40 a barrel. Front-month prices are higher than those in future months in a backwardated market, indicating tight supplies.
On Friday, open interest in New York Mercantile Exchange futures fell to their lowest since September 2015 as investors cut risky assets like commodities, worried that the Federal Reserve will keep raising US interest rates.
“People have been switching out of Delta 1 products — just being long the futures or long via the index — into options because of the sharp pullback,” Stephen Innes, managing partner at SPI Asset Management, said in a note.
“They have changed from being completely exposed to the downside to exploring it via options, tending towards buying calls, call spreads, and selling puts.”
In the United States, crude stocks rose by about 1.9 million barrels for the week ended July 15, according to market sources citing American Petroleum Institute figures on Tuesday.
That was close to the forecast for a rise of 1.4 million barrels in a Reuters poll.
Official weekly crude and fuel inventory data from the US Energy Information Administration (EIA) is expected on Wednesday at 1530 GMT and traders are watching out for implied demand.
The European Union will set out emergency plans on Wednesday to reduce gas demand within months, warning countries that without deep cuts now they could struggle for fuel during winter if Russia cuts off deliveries.
Europe is racing to fill its gas storage ahead of winter and build a supply buffer in case Moscow further restricts supplies in retaliation for European support for Ukraine in its war with Russia. Russia’s Gazprom has already halted deliveries to some EU states and EU officials have warned that further cuts are likely.
The European Commission is set to urge countries to prepare for such a scenario by slashing gas use. A draft of the EU plan, seen by Reuters, would propose a voluntary target for EU countries to cut their gas demand over the next eight months, which could be made legally binding if Europe faced a gas supply emergency.
The proposal would need approval from EU countries, who are largely responsible for their own energy policies.
“This is a signal to all public bodies, consumers, households, owners of public buildings, power suppliers and that they must now take extraordinary and rapid measures to save gas,” the draft said.
The exact number for the reduction target was not specified in the draft, which could change again before it is published.
The draft plan suggests measures governments can take – launching financial incentives for companies to cut gas use, using state aid to encourage industries and power plants to switch to other fuels, and producing information campaigns to nudge consumers to use less heating and cooling.
Measures targeting industry could include auctions or tenders where large consumers would receive compensation for using less gas, according to the draft, which could change before it is published.
Governments should also decide the order in which they would force industries to close in a supply emergency, it said.
Gas deliveries are due to restart through Russia’s Nord Stream 1 pipeline to Germany on Thursday, after annual maintenance.
There have been fears among governments that flows will not restart, which would heighten a gas crisis that has sent consumer bills soaring. Sources told Reuters that flows would likely resume, but at below full capacity.
