Oil drops on Druzhba pipeline news and U.S. inflation expectations

© Reuters. FILE PHOTO: Sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

By Rowena Edwards

LONDON (Reuters) -Oil prices edged lower on Wednesday on expectations that Druzhba pipeline flows will resume shortly and demand concerns ahead of publication of key demand indicators.

Brent crude futures fell 73 cents, or 0.76%, to $95.58 a barrel by 0928 GMT.

U.S. West Texas Intermediate crude futures were down 64 cents, or 0.71%, at $89.86.

Both contracts slipped by more than $1 a barrel earlier in the session.

Oil flows to central Europe via the Druzhba pipeline will resume shortly after Hungarian energy group MOL transferred the transit fee for use of the Ukrainian section of the pipeline, MOL said on Wednesday.

Demand fears also weighed on prices, analysts said.

"Fears of recession-induced demand destruction are the single-biggest price driver currently and the principal reason why Brent is trading sub-$100 a barrel," said PVM analyst Stephen Brennock.

The consumer price index (CPI) report, due to be released at 1230 GMT on Wednesday, will be scrutinised for a steer on how steeply the U.S. Federal Reserve will raise interest rates in the coming months.

The report is likely to show that underlying inflation pressures remain elevated as the Federal Reserve considers whether to embrace another supersized interest rate increase in September, which could curb economic activity and fuel demand.

U.S. crude oil stocks, meanwhile, rose by about 2.2 million barrels for the week ended Aug. 5, according to market sources citing American Petroleum Institute (API) figures. Analysts polled by Reuters had forecast that crude inventories would rise by about 100,000 barrels. [API/S] [EIA/S]

Official government data is due later on Wednesday.

Though concerns over a potential global recession have weighed on oil futures recently, U.S. oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022, according to a Reuters review of company earnings calls.