Oil prices rose on Wednesday after an industry report showed crude stockpiles in the United States staged a bigger drop than expected, suggesting demand is improving even as the coronavirus outbreak spreads around the world.
Brent crude rose 31 cents, or 0.8 per cent, to $41.58 a barrel by 0632 GMT after declining more than one per cent on Tuesday.
U.S. crude was up 35 cents, or 0.9 per cent, at $39.62 a barrel, having dropped by 1.1 per cent in the previous session.
U.S. crude and gasoline stocks fell more than expected last week, while distillate inventories rose, data released by the American Petroleum Institute (API) late on Tuesday showed.
Crude inventories dropped by 8.2 million barrels to 537 million barrels, against analysts’ forecasts for a draw of 710,000 barrels.
“Investors would be keen to watch if the EIA (U.S. Energy Information Administration) … matches or confirms the API data, which would be bullish for crude oil markets despite the increased concern about the spread of the coronavirus,’’ said Avtar Sandu, Senior Commodities Manager at Phillip Futures.
Official inventory data from the EIA is due out later on Wednesday.
Also supporting prices was a drop in output from the Organisation of the Petroleum Exporting Countries (OPEC) to the lowest in two decades in June.
The 13-member grouping produced an average of 22.62 million barrels per day (bpd) in June after they agreed to cut output, a Reuters’ survey found, down 1.92 million bpd from May’s revised figure.
“The fall in output means that OPEC over-complied with the deal in June, with compliance coming in at 107 per cent,’’ ING Economics said, though noting that the over-compliance followed additional cuts by Saudi Arabia, the United Arab Emirates and Kuwait.
Those producers agreed to more cuts during June than other OPEC members.
“It is likely that compliance will slip again in July, unless we see a significant improvement in compliance from Iraq and Nigeria,’’ ING said.
Prices for later this year are likely to be capped, analysts said, as the world is awash with oil after the coronavirus caused demand for fuel to drop by around a third.
A Reuters’ poll of analysts indicated that oil prices will consolidate at around $40 a barrel this year, with a recovery potentially picking up in the fourth quarter.
The coronavirus continues to spread around the world with ever increasing rates of infection.
Cases now total more than 10 million with more than half a million people dying after catching COVID-19. (Reuters/NAN)