Crude Oil Higher; Rebounding on Supply Tightness

© Reuters.

By Peter Nurse

AiVIF.com -- Oil prices rose Wednesday, bouncing after the previous session’s heavy losses as traders renewed their focus on supply tightness despite worries over potential demand destruction in the wake of a global recession.

By 9:10 AM ET (1310 GMT), U.S. crude futures traded 0.1% higher at $99.56 a barrel, after closing below $100 for the first time since late April, while the Brent contract rose 0.7% to $103.53, after plunging 9.5% on Tuesday.

U.S. Gasoline RBOB Futures were up 1% at $3.6628 a gallon.

Both contracts recorded their largest daily drop since March on Tuesday, but have seen a quick resurgence as supply tightness persists.

The Organization of the Petroleum Exporting Countries Secretary-General Mohammad Barkindo said on Tuesday, just hours before he passed away, that the industry faces some problems due to years of under-investment.

He added that supply tightness could be eased if extra supplies from Iran and Venezuela were allowed - but additional supply from Iran doesn’t look likely in the near future.

This follows the Persian Gulf country rejecting a plan to return to the 2015 international nuclear accord, with recent negotiations in Doha a “wasted occasion,” according to Robert Malley, the U.S. Special Envoy for Iran.

“The oil market remains tight and given the expectation that Russian oil supply will decline as we move through the year, the market is set to remain tight,” said analysts at ING, in a note. “Therefore, we expect any further downside in the market to be fairly limited.”

The Norwegian government attempted to ease some of the pressures by intervening to end a strike by some of the country’s offshore workers, meaning that all the oil and gas fields that were affected by a strike are expected to be back in full operation within a couple of days.

Limiting Wednesday’s gains has been the strength of the U.S. dollar, which climbed to a 20-year high against the euro. A stronger greenback usually makes oil more expensive in other currencies, which could curb demand.

Additionally, a new program of virus testing in Shanghai raises fears that China’s financial center will be plunged back into another shutdown just as the country’s consumption of gasoline and diesel nears a return to pre-Covid levels.

Weekly crude inventory data from the industry body American Petroleum Institute will be published later in the session, after being delayed by Monday’s holiday.