Oil prices increased by more than $1 on Wednesday, recovering from six-month lows reached the previous day, as investors were reminded by an unexpectedly significant drop in U.S. oil and gasoline supplies that demand is still strong, despite being overshadowed by the possibility of a worldwide recession.
By 0630 GMT, the price of Brent crude futures had increased by 82 cents, or 0.9%, to US$93.16 per barrel.
The price of West Texas Intermediate (WTI) oil futures increased as well, rising 85 cents, or 1%, to US$87.38 a barrel.
The contracts fell by roughly 3% on Tuesday as worries about a future global recession grew in response to disappointing U.S. housing start statistics.
According to Kazuhiko Saito, chief analyst at Fujitomi Securities CO. LTD, “a reduction in U.S. gasoline stockpiles for a second consecutive week has reassured investors that demand is resilient, prompting buys.”
American Petroleum Institute numbers from Tuesday were cited by market sources as evidence that U.S. oil and fuel stockpiles decreased in the most recent week.
For the week ending August 12, crude stockpiles fell by roughly 448,000 barrels. According to the sources, distillate stocks decreased by roughly 759,000 barrels and gasoline inventories decreased by about 4.5 million barrels.
Tuesday’s extended Reuters poll indicated that while distillate inventories increased, crude inventories probably decreased by about 300,000 barrels and gasoline stockpiles by about 1.1 million last week.
According to Craig Erlam, senior market analyst at Oanda, “there are a number of bearish causes and downside risks for oil at the moment, from the fear of recession to the weak data in China and the potential for a nuclear deal between the U.S. and Iran.”
But oil has retreated significantly, and we must not overlook the fact that the market is still extremely tight in the near term.
If talks to resurrect the 2015 nuclear agreement between Iran and the international community are successful, restrictions on Iranian oil exports would be lifted, analysts said, which may increase the availability of oil.
After Tehran urged Washington to be flexible, the European Union and the United States announced on Tuesday that they were examining Iran’s answer to what it has dubbed its “final” proposal to save the deal.
“The restoration of the Iranian nuclear accord looked like a potentially successful mid-term issue when WTI prices were well north of US$100,” wrote RBC Capital analyst Helima Croft in a note on Wednesday. “But it appears to be a less compelling case in the present pricing and security context.”
We would point out that given the impending supply constraint the continent will confront when Russian sanctions begin in December, the Europeans are perhaps more motivated to reach a solution.
As part of sanctions imposed over Moscow’s invasion of Ukraine, the EU will halt purchasing all Russian crude oil shipped by sea beginning in early December and will outlaw all Russian processed products two months later. Russia refers to its activities as “a special operation” there.
