Crude oil futures rose more than 1% on Wednesday, bouncing back from four-month lows after a decision by OPEC+ to increase production triggered a selloff this week.
U.S. crude and global benchmark Brent are down nearly 4% this week after eight OPEC+ members agreed Sunday to gradually phase out 2.2 million barrels per day in production cuts.
The selloff was overdone, said Warren Patterson, head of commodities strategy at ING. OPEC+ won’t start increasing production until October, and the global oil balance sheet will tighten beforehand, Patterson said.
Here are Wednesday’s closing energy prices:
- West Texas Intermediate July contract: $74.07 a barrel, up 82 cents, or 1.12%. Year to date, U.S. crude oil is up 3.3%.
- Brent August contract: $78.41 a barrel, up 89 cents, or 1.15%. Year to date, the global benchmark is up 1.78%.
- RBOB Gasoline July contract: $2.35 per gallon, up 0.17%. Year to date, gasoline futures are up 11.9%.
- Natural Gas July contract: $2.75 per thousand cubic feet, up 6.61%. Year to date, natural gas is up 9.67%.
“The technicals also suggest that the oil market is entering oversold territory,” Patterson told clients in a research note Wednesday.
U.S. crude oil “has a history of bouncing from oversold territory rather quickly versus camping out in the basement for days on end,” Bob Yawger, executive director of energy futures at Mizuho Securities, told clients in a note Tuesday.
Yawger said U.S. oil could rally back to a range of $76.15 to $80.62 per barrel in the coming days as speculators cover short positions, before the market “reverses course and drills lower again.”
Helima Croft, head of global commodity strategy at RBC Capital Markets, emphasized that the OPEC+ plan to increase oil supply is not binding. Saudi Arabia will “hit the kill switch” on a fourth-quarter production increase if the market is oversupplied or sentiment is poor come September, she said.
“The intention has always been to slow roll the barrels back in and not to send the market into a tailspin with a supply surge,” Croft told clients in a research note Tuesday. “Since Saudi Arabia will be providing the lion’s share of the new barrels, it will not be bound by Sunday’s supply schedule if it is not in their national interest,” she said.
Rising oil inventories in the U.S. weighed on prices Wednesday earlier in the session. U.S. crude stockpiles grew by 1.2 million barrels last week, according to data from the Energy Information Administration. This far outpaced analyst expectations of a 2.3 million barrel draw. Gasoline stocks rose by 2 million barrels, which was largely in line with expectations.
