Oil prices recovered some ground on Wednesday after the previous session’s steep selloff, but the market remained nervous as traders weighed supply growth, softer demand and a warning from the International Energy Agency.
Brent crude futures were at $63.19 a barrel at 0239 GMT, up 66 cents, or 1.1 percent. U.S. West Texas Intermediate rose 66 cents, or 1.2 percent, to $54.09 a barrel.
The rebound followed a late Tuesday report from the American Petroleum Institute showing U.S. commercial crude inventories fell unexpectedly by 1.5 million barrels to 439.2 million in the week to Nov. 16. Traders also pointed to record Indian crude imports of almost 5 million barrels per day as support.
Even with those factors, the move was small compared with the broader weakness that sent crude down by more than 6 percent in the prior session alongside a selloff in global stock markets. IEA chief Fatih Birol said on Tuesday, “The global economy is still going through a very difficult time and is very fragile.”
Futures brokerage CMC Markets said, “Rising global growth fears smashed oil markets and saw European and U.S. shares slide.”
Pressure on prices has been building for weeks. Brent and WTI have fallen 28 percent and 30 percent respectively since early October, and the forward curve has shifted from backwardation to contango for most of 2019, a sign that traders see more supply than immediate demand.
That shift matters because backwardation, which prevailed in October, suggests tight supply and makes storage unattractive. Contango does the opposite, encouraging traders to store crude for later sale when future prices are higher.
ANZ bank said investors were increasingly worried that any OPEC production cut would not be enough to absorb the surplus. James Mick, energy portfolio manager at U.S. investment firm Tortoise, said the decline reflected “too much supply and a risk of slowing demand growth,” adding that U.S. production had been a major part of the problem.
U.S. crude output has climbed by almost a quarter this year to a record 11.7 million bpd, driven largely by shale production. That surge has deepened concern that OPEC’s planned response may not be enough to stabilize the market.
OPEC has been pushing for a supply cut of between 1 million and 1.4 million bpd to avoid a repeat of the 2014 glut. Ashley Kelty, oil analyst at Cantor Fitzgerald Europe, said, “We would anticipate further weakness until the reaction from OPEC+ (Dec. 6) and the G20 summit is clearer (Nov. 30/Dec. 1).”
Market context ¶
The 2014 glut remains the reference point for traders worried about another prolonged oversupply cycle. With demand expectations deteriorating and output still rising, the market is waiting for clearer signals from OPEC+ and the G20 before deciding whether the 2018 bounce can hold into 2019.
Reuters reported the story from Singapore, with reporting by Henning Gloystein and editing by Joseph Radford and Richard Pullin.
