Oil prices recovered in Singapore after a bruising session, with Brent and West Texas Intermediate both rising more than 1 percent as traders reacted to a surprise draw in U.S. crude inventories and stronger demand signals from India.
International Brent crude futures were trading at $63.39 a barrel at 0747 GMT, up $0.86, or 1.4 percent, while U.S. West Texas Intermediate was at $54.33 a barrel, up 90 cents, or 1.7 percent. The bounce followed a report from the American Petroleum Institute late on Tuesday showing U.S. commercial crude stocks fell by 1.5 million barrels to 439.2 million in the week to Nov. 16.
Record crude imports by India, which traders said were close to 5 million barrels per day, also lent support. Even so, the recovery did not erase the damage from the previous session, when crude prices dropped by more than 6 percent amid a broader selloff in global equity markets.
The International Energy Agency warned that oil markets were facing “unprecedented uncertainty” because of a difficult economic backdrop and political risk. IEA chief Fatih Birol said on Tuesday, “The global economy is still going through a very difficult time and is very fragile.”
Goldman Sachs said on Wednesday that the renewed price slide reflected “concerns over excess supply in 2019... (and) a broader cross-commodity and cross-asset sell-off as growth concerns continue to mount”.
Market pressure has been building since early October, when Brent and WTI had already fallen 28 percent and 30 percent respectively. The forward curve for Brent, which was in steep backwardation in October, has since shifted into contango for most of 2019, a sign traders read as oversupply and a market that is easier to store oil in for later sale.
That shift matters because a recovery in prices would likely require the curve to move back into backwardation, Goldman said. James Mick, energy portfolio manager at U.S. investment firm Tortoise, said “part of the supply issue has been surging U.S. production”.
U.S. crude output has risen by almost a quarter this year to a record 11.7 million barrels per day, driven largely by shale production. The surge has added to the pressure on OPEC, which is pushing for supply cuts of between 1 million and 1.4 million barrels per day to avoid a repeat of the 2014 glut.
Analyst Ashley Kelty of 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).”
The Reuters report also noted a graphic showing Brent crude oil moving into contango and another showing the slump being led by U.S. crudes. The article was reported by Henning Gloystein and edited by Joseph Radford and Richard Pullin.
The accompanying Reuters image showed oil pump jacks beside a strawberry field in Oxnard, California, on February 24, 2015.
Oversupply remains the central concern ¶
Despite the day’s rebound, the broader message from traders and analysts was that the market remained fragile. The combination of rising U.S. output, weaker growth expectations and uncertainty around OPEC+ and the G20 summit kept sentiment under pressure.
Goldman said the market would need a stronger structural shift before prices could recover meaningfully, while OPEC continued to argue for coordinated cuts to prevent another supply glut like the one seen in 2014.
