Oil prices rebound after dropping to lowest in months

An aerial view of Phillips 66 oil refinery is seen in Linden, New Jersey, United States. Oil prices rose in early Asian trade on Thursday, bouncing off multi-month lows in the previous session caused by data signaling weak US fuel demand.

Tayfun Cosku | Anadolu Agency | Getty Images

Oil prices dipped on Thursday as the market weighed tight supply against fears of a demand slowdown, after a build in US crude and gasoline stocks sent prices to multi-month lows in the previous session.

Brent crude futures were down $1.04, or 1%, to $95.70 per barrel, while West Texas Intermediate (WTI) crude futures declined 80 cents to $89.82 per barrel.

Both benchmarks fell on Wednesday to their weakest levels since before Russia’s Feb. 24 invasion of UKraine, that Moscow calls “a special operation”.

The move followed an unexpected surge in US crude inventories last week. Gasoline stocks, the proxy for demand, also showed a surprise build as demand slowed, the Energy Information Administration said.

The demand outlook remains clouded by increasing worries about an economic slump in the United States and Europe, debt distress in an emerging market, and a strict zero COVID-19 policy in China, the world’s largest oil importer.

An OPEC+ agreement on Wednesday to raise its output target by just 100,000 barrels per day (bpd) in September, equivalent to 0.1% of global demand, was viewed as bearish for the market.

“The largely symbolic increase will obviously not provide a significant buffer to any potential supply shock, but the oil balance will not get tighter either,” said Tamas Varga of oil broker PVM.

Also, OPEC heavyweights Saudi Arabia and the UAE stand ready to deliver a “significant increase” in oil output should the world face a severe supply crisis this winter, sources familiar with the thinking of the top Gulf exporters said.

Still, analysts expect the limited spare capacity of OPEC+ – highlighted in a statement on Wednesday – to support prices longer term.

“We believe (limited spare capacity) will effectively result in a production increase of just one-third of the agreed volumes in September,” UBS oil analyst Giovanni Staunovo said.

Edward Moya, senior analyst with OANDA, said he expected prices to higher trend even against the worsening economic backdrop.

“Crude prices should find strong support around the $90 level and eventually will rebound towards the $100 barrel level even as the global economic slowdown accelerates,” he said.

Additional price support came from the Caspian Pipeline Consortium (CPC), which connects Kazakh oil fields with the Russian Black Sea port of Novorossiisk, and which said on Wednesday that supplies were significantly down.

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