Yemisi Izuora
Oil prices appreciated further on Wednesday, bouncing back from the previous session’s large losses, as investors looked for bargains and supported by hopes that consuming countries will look to fill their strategic reserves.
Still, worries about oversupply amid global coronavirus-related lockdowns and a warning from the International Monetary Fund (IMF) about a deep recession kept gains in check.
Brent futures were up 24 cents, or 0.8 per cent at $29.84 a barrel as after falling 6.7 per cent on Tuesday, while the U.S. West Texas Intermediate crude rose 38 cents, or 1.9 per cent to $20.49, having crashed 10.3 per cent in the previous session.
Both benchmarks were undercut on Tuesday by worries that a record global output cut by producers would not offset plunging fuel demand due to efforts to contain the coronavirus pandemic.
“Investors unwound short positions, after confirming a rise in U.S. crude oil stocks,” said Kazuhiko Saito, chief analyst at Fujitomi.
Before the report on U.S. inventories, “they had sold aggressively with expectations for such a build,” Saito said.
U.S. crude inventories rose by 13.1 million barrels in the week ended on April 10, data from industry group the American Petroleum Institute showed on Tuesday, more than analyst expectations for a build of 11.7 million barrels.
Hopes for massive purchasing by consuming countries for their strategic stockpiles also lent support.
Officials and sources from the Organization of the Petroleum Exporting Countries and its Russia-led allies a grouping known as OPEC+ have indicated that the International Energy Agency (IEA), energy watchdog for the world’s most industrialised nations, may announce purchases of up to several million barrels to buoy the record OPEC+ output cut.
The U.S. Energy Department said on Tuesday it is negotiating with nine energy companies to store about 23 million barrels of domestic oil in its Strategic Petroleum Reserve (SPR).
“Expectations that non-OPEC+ members such as the United States and Canada will also trim output are also boosting investors’ sentiment,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.
U.S. shale oil output is expected to drop by 194,000 barrels per day (bpd) in April, the most on record, according to the U.S. Energy Information Administration.
Warnings from the IMF of what could be the steepest global downturn since the Great Depression of the 1930s, however, weighed on financial markets.
The global economy is expected to shrink by 3 per cent during 2020 in a stunning coronavirus-driven collapse of activity, the IMF said on Tuesday.