U.S. crude oil prices saw a significant rebound on Wednesday, recovering more than 2% and stabilizing above $67 per barrel. This surge followed a steep sell-off in the previous session, where prices hit their lowest level in nearly three years, reflecting market anxieties about global demand and increased supply pressures.
The October contract for West Texas Intermediate (WTI), the benchmark for U.S. crude, rose $1.69 to settle at $67.44 per barrel, marking a 2.6% increase. Meanwhile, Brent crude, the global benchmark, saw its November contract climb $1.57 to $70.76 per barrel, a 2.2% gain. Despite these gains, both benchmarks remain down year-to-date, with WTI off by 5.9% and Brent by 8.2%.
The sharp sell-off earlier this week was triggered by OPEC's decision to lower its demand growth outlook for the second time in as many months. This revision, coupled with expectations of increased production from eight OPEC+ member countries in December and a slowdown in China's crude oil imports, stoked fears of an oversupplied market. These developments prompted traders to speculate about the potential for Brent prices to dip towards $60 per barrel-a level not seen consistently in recent years.
Claudio Galimberti, an analyst at Rystad Energy, provided a more measured perspective on these fears. Speaking on CNBC's "Squawk Box Asia," Galimberti noted that while concerns over weakening demand, particularly from China, are valid, the bearish outlook for Brent prices might be overblown. "Supply and demand fundamentals suggest that stockpiles are set to decline, which could support higher prices," he said. Galimberti emphasized that any price recovery would be contingent on a rebound in China's economy and strict compliance with production quotas by OPEC+ members.
Supporting the rebound in oil prices on Wednesday was news of a significant drop in U.S. crude inventories. The American Petroleum Institute (API) reported a decline of 2.793 million barrels in U.S. crude stocks, along with a 513,000-barrel decrease in gasoline inventories. The API data provided some comfort to the market after Tuesday's losses, as it indicated a stronger-than-expected drawdown in crude and gasoline stocks.
Tamas Varga, an analyst at oil broker PVM, commented on the API report, stating, "The sizable decline in crude oil stocks and a better-than-expected draw in gasoline provided a much-needed boost to market sentiment." This decline in inventories, coupled with only a minor increase in distillate stocks, helped ease concerns about a potential oversupply.
Further bolstering prices was the looming threat of Hurricane Francine, which has the potential to disrupt oil production in the U.S. Gulf of Mexico. The U.S. Bureau of Safety and Environmental Enforcement (BSEE) reported that approximately 24% of crude oil production and 26% of natural gas output in the Gulf were offline due to the storm. Analysts, including Yuki Takashima of Nomura Securities, pointed to the hurricane's impact as a key factor in Wednesday's price recovery, noting that "supply disruption fears from Francine also lent support."
The market's focus now turns to the official inventory data from the U.S. government, expected to be released later on Wednesday. Analysts polled by Reuters estimate that crude inventories may have risen by about 1 million barrels last week, with gasoline stocks projected to have fallen by 0.1 million barrels.
