Oil prices rose a staggering nearly 3 percent on Wednesday before making some gains as investors plunged back into the market after a heavy defeat in the previous session, with supply concerns resurfacing even as concerns over a global recession persisted.
Brent crude futures rose as much as $3.08, or 2.9 percent, to $105.85 a barrel in early trading, after falling 9.5 percent on Tuesday, the largest daily drop since March. It was last up 92 cents, or 0.9 percent, to $103.69 a barrel at 02:43 GMT.
US West Texas Intermediate crude climbed to a session high of $102.14 a barrel, up $2.64 or 2.7 percent, after closing below $100 for the first time since late April. It was last up 46 cents, or 0.5 percent, to $99.96 a barrel.
“Today is a kind of reset. There is undoubtedly a shortage of cover and bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.
“The fundamental story regarding global tightness is still there… The sell-off was definitely overdone,” he added.
Oil started the third quarter on a volatile basis as concerns about a potential recession rocked financial markets. As central banks, including the Federal Reserve, raise interest rates to contain inflation, investors have priced in the effects of a slowdown even as physical crude markets continue to show signs of strength and the war in Ukraine continues.
“While the likelihood of a recession is indeed rising, it is premature for the oil market to succumb to such concerns,” Goldman Sachs analysts, including Damien Courvalin, said in a note. “The global economy is still growing, with oil demand growth set to significantly outperform GDP growth this year.”
In China, there are signs of rising consumption as the world’s largest oil importer emerges from tight virus lockdowns that sapped demand. Total gasoline and diesel consumption last month was nearly 90 percent of June 2019 levels, Bloomberg News reported based on unnamed people with knowledge of the energy industry.
OPEC Secretary General Mohammad Barkindo said on Tuesday that the industry was “besieged” over years of underinvestment, and that deficits could be alleviated if additional supplies from Iran and Venezuela were allowed.
Former Russia president Dmitry Medvedev also warned that a reported proposal by Japan to limit the price of Russian oil to about half its current level would lead to significantly less oil in the market and prices above $300-$300. $400 a barrel.
On the other hand, the Norwegian government intervened on Tuesday to end a strike in the petroleum sector that had cut oil and gas production, a union leader and the Ministry of Labor said, ending a deadlock that left the country behind. could have exacerbated the energy crisis in Europe.
Policy tightening continues
However, concerns about a recession continue to weigh on the markets. By some early estimates, the world’s largest economy may have shrunk in the three months from April to June. That would be the second consecutive quarter of contraction given the definition of a technical recession.
More G10 central banks raised interest rates in June than in any other month, according to calculations by the Reuters news agency. With inflation at multi-decade highs, the pace of policy tightening is not expected to slow down in the second half of 2022.
“While crude oil continues to face a supply shortage problem, the main factors that led to the sharp sell-off in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and a likely rate hike by the US Federal Reserve as pressures on commodity prices.
“So today’s recovery could be a short-term correction for bears and oil prices are likely to remain under pressure for the foreseeable future.”