Oil prices stable despite lower inventory reductions in the US and Libya

Oil prices stabilized on Thursday after a smaller-than-expected drawdown in U.S. inventories raised fears of falling demand, but the likelihood of continued supply shortages in Libya helped limit the extent of losses.

Crude oil markets recovered from two consecutive days of declines after largely erasing the recent recovery amid lingering concerns that slowing growth in both the U.S. and China could negatively impact demand in the coming months.

Traders were still factoring in certain risks related to production disruptions in Libya, along with indications of ongoing conflicts in the Middle East.

Brent oil futures for October delivery fell slightly to $78.62 a barrel, while West Texas Intermediate crude futures were steady at $74.57 a barrel by 20:54 ET (00:54 GMT).

US inventories fall due to slowing demand in summer

According to the Energy Information Administration (EIA), oil inventories in the US fell less than expected in the week ending August 23, by 0.85 million barrels. While gasoline inventories fell more than forecast, there was an unexpected increase in distillates.

Those mixed inventory numbers added to fears that demand for oil in the U.S. could fall as the busy summer travel season comes to a close. Continuing worries about a slowdown in the U.S. economy following a series of disappointing jobs reports also added to the unrest.

Attention now turns to second-quarter U.S. gross domestic product data, due later on Thursday, which may provide further insight into the world's largest economy. In addition, core data on the PCE price index – a measure favored by the Federal Reserve as an inflation measure – is due to be released on Friday as optimism grows about possible rate cuts.

Read more: Oil prices rise on strong API data and ongoing supply concerns

Libya's supply risks reduce oil losses

Despite the larger losses in oil prices, certain risk factors supported prices, particularly after Libya halted production at most of its major oil fields this week due to increasing tensions over the country's central bank.

Libya's Central Bank, the only internationally recognized institution that manages oil export revenues, is under the control of the recognized government in the west. In contrast, the eastern region, where most of the oil fields are located and which is governed by its own government, has recently demanded changes in the leadership of the central bank and halted all oil production.

In July, Libya produced around 1.2 million barrels per day, and any prolonged halt in production could signal a significant global oil shortage.

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