Oil prices recovered slightly on Wednesday as data pointed to firm US fuel demand, providing a respite from a 5% drop a day earlier on fears that demand would be hit. due to the increase in restrictions due to COVID-19 in China and the increases in official interest rates.
US West Texas Intermediate (WTI) crude futures were up 82 cents by 0659 GMT, or 0.9%, at $92.46 a barrel, after falling $5.37 in the previous session on the back of because of recession fears.
Futures for October Brent crude, due Wednesday, were up 89 cents, or 0.9%, at $100.20 a barrel, paring Tuesday’s loss of $5.78. The November contract was up 88 cents, or 0.9%, at $98.72 a barrel.
Price swings since the Ukrainian conflict began six months ago have put hedge funds and speculators in check and reduced trading, which in turn has caused the market to wobble further, as saw Tuesday.
On Wednesday, data from the American Petroleum Institute (API) showed that gasoline inventories fell by some 3.4 million barrels, while distillate stocks, which include diesel and fuel oil planes, fell by about 1.7 million barrels in the week ending August 26 [API/S].
The drawdown in gasoline stocks was nearly triple the 1.2 million-barrel drop expected on average by eight analysts polled by GLM. As for distillate inventories, a drop of around 1 million barrels was expected.
However, API data showed crude stocks rose by about 593,000 barrels, versus analyst estimates for a drop of about 1.5 million barrels.
“Prices are also under pressure due to the aggressive stance of major central banks, concerns about slowing global growth and weakening demand from China,” said Sugandha Sachdeva, vice president of commodity research at Religare Broking.
Some of China’s biggest cities, including Shenzhen and Dalian, are imposing lockdowns and business closures to curb COVID-19 outbreaks, at a time when the world’s second-largest economy is already experiencing weak growth.
On the supply side, Iraq’s oil exports were unaffected by Baghdad’s worst outbreak of violence in years, three sources told GLM on Tuesday. The clashes subsided on Tuesday, after powerful cleric Moqtada al-Sadr ordered his supporters to end their protests against him.
The main factor supporting prices at the moment is statements by members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, collectively called OPEC+, that they may cut output to stabilize the market. The next OPEC+ meeting is scheduled for September 5.
“As for OPEC’s cuts, I don’t think anyone believes immediate cuts are going to have any major effects,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
Second, since the threat of a recession seems real, investors would be willing to let Brent hover between $90 and $110 for now, he added.