Oil prices rose over US$1 on Wednesday, rebounding from six-month lows hit the previous day, as an unexpectedly large drop in U.S. oil and gasoline stocks reminded investors that demand remains firm, if overshadowed by the prospect of a global recession.
Brent crude futures were last up 82 cents, or 0.9per cent, to US$93.16 a barrel by 0630 GMT.
West Texas Intermediate (WTI) crude futures also rose 85 cents, or 1per cent, to US$87.38 a barrel.
The contracts slumped about 3per cent on Tuesday as weak U.S. housing starts data spurred concerns about a potential global recession.
“A drawdown of U.S. gasoline stockpiles for a second straight week has reassured investors that demand is resilient, prompting buys,” said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd.
“Still, the oil market is expected to stay under pressure, with fairly high volatility, due to worries over a potential global recession,” he said.
U.S. crude and fuel stocks fell in the latest week, according to market sources citing American Petroleum Institute figures on Tuesday.
An extended Reuters poll showed on Tuesday that crude inventories probably dropped by around 300,000 barrels last week and gasoline stockpiles likely fell 1.1 million barrels, while distillate inventories rose.
“There are a number of bearish factors and downside risks for oil at the moment, from the threat of recession to the poor data in China and the possibility of a nuclear deal between the U.S. and Iran,” said Craig Erlam, senior market analyst at Oanda.
“But crude has pulled back a long way and we can’t forget that this remains a very tight market in the short term.”
Oil supply could rise if talks to revive the Iran’s 2015 nuclear deal with world powers are successful, which would remove sanctions on Iranian oil exports, analysts said.
The European Union and United States said on Tuesday they were studying Iran’s response to what the EU has called its “final” proposal to save the deal after Tehran called on Washington to show flexibility.
“When WTI prices were well north of US$100, the revival of the Iranian nuclear agreement looked like a potentially winning mid-term issue but it appears to be a less compelling case in the current price and security context,” said RBC Capital analyst Helima Croft in a note on Wednesday.
“We would note that the Europeans are likely more incentivised to secure a deal given the looming supply shortage the continent faces when Russian sanctions come on in December.”
The EU will stop buying all Russian crude oil delivered by sea from early December and ban all Russian refined products two months later as part of sanctions imposed over Moscow’s invasion of Ukraine. Russia calls its actions there “a special operation”.