NEW YORK (Reuters) – Oil futures on Wednesday clawed back some of the losses they sustained in the previous session, but a rebound in COVID-19 cases in some countries undermined hopes for a steady recovery in global demand.
Brent crude <LCOc1> rose $1.01, or 2.5%, to settle at $40.79 a barrel. The benchmark dropped more than 5% on Tuesday to fall below $40 for the first time since June.
U.S. crude <CLc1> rose $1.29, or 3.5% to settle at $38.05 a barrel, having fallen nearly 8% in the previous session.
That lifted the major benchmarks off Tuesday’s levels near three-month lows. Prices fell this week after Saudi Arabia’s state oil company Aramco cut the October official selling prices for its Arab light oil, a sign of softening demand.
“When strong Middle Eastern producers are willing to sell-off in lower prices, it is normal that the global market panics and follows suit,” said Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst.
The global health crisis continues to flare with coronavirus cases rising in India, Britain, Spain and several parts of the United States. The outbreaks are threatening to slow a global economic recovery and reduce demand for fuels from aviation gas to diesel.
“Short-term oil market fundamentals look soft: the demand recovery is fragile, inventories and spare capacity are high, and refining margins are low,” Morgan Stanley said.
Record supply cuts by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have helped support prices, but with grim economic figures being reported almost daily, the outlook for demand for oil remains bleak.
The U.S. Energy Information Administration on Wednesday cut its 2020 world oil demand growth forecast by 210,000 barrels per day to 8.32 million bpd.
China’s factory gate prices fell for a seventh straight month in August although at the slowest annual pace since March, suggesting industries in the world’s second-biggest economy continued their recovery from the coronavirus-induced downturn.
In the United States, crude inventories rose 3 million barrels last week to 504.1 million barrels, industry data from the American Petroleum Institute showed late Wednesday. Analysts had expected a draw of 1.3 million barrels.
U.S. government inventory data is due on Thursday, delayed a day by Monday’s Labor Day holiday.
U.S. crude oil production is expected to fall 870,000 bpd to 11.38 million bpd this year, a less steep decline than previously forecast, the U.S. government said in its latest monthly outlook.
Further oil production cuts are expected in 2021, according to the report.
(Reporting by Stephanie Kelly in New York, additional reporting by Ahmad Ghaddar in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and David Gregorio)