An oil refinery is situated along a highway in Big Spring, Texas.
Spencer Platt | Getty Images
Oil futures on Wednesday clawed back some of the losses they sustained in the previous session, but a rebound in COVID-19 cases in some countries undermined hopes for a steady recovery in global demand.
Brent crude rose $1.21, or 3%, to $40.99 a barrel. The benchmark dropped more than 5% on Tuesday to fall below $40 a barrel for the first time since June.
U.S. crude settled $1.29, or 3.5%, higher at $38.05 per barrel, having fallen nearly 8% in the previous session.
That lifted the major benchmarks off Tuesday’s levels near three-month lows. Prices fell this week after Saudi Arabia’s state oil company Aramco cut the October official selling prices for its Arab light oil, a sign of softening demand.
“When strong Middle Eastern producers are willing to sell-off in lower prices it is normal that the global market panics and follows suit,” said Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst.
The global health crisis continues to flare with coronavirus cases rising in India, Great Britain, Spain and several parts of the United States. The outbreaks are threatening to slow a global economic recovery and reduce demand for fuels from aviation gas to diesel.
“Short-term oil market fundamentals look soft: the demand recovery is fragile, inventories and spare capacity are high, and refining margins are low,” Morgan Stanley said.
Record supply cuts by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+ have helped support prices, but with grim economic figures being reported almost daily, the outlook for demand for oil remains bleak.
China’s factory gate prices fell for a seventh straight month in August although at the slowest annual pace since March, suggesting industries in the world’s second-biggest economy continued their recovery from the coronavirus-induced downturn.
Investors awaited industry data on U.S. crude stockpiles due on Wednesday. U.S. crude oil stockpiles were expected to fall for a seventh straight week, while refined product inventories also likely dropped last week, a Reuters poll showed on Wednesday.
U.S. crude oil production is expected to fall 870,000 barrels per day to 11.38 million bpd this year, a less steep decline than previously forecast, the U.S. government said in its latest monthly outlook on Wednesday.
Further oil production cuts are expected in 2021, according to the report.
