Oil goes above $63 after a big fall, but glut worries persist

London — Oil bounced above $63 a barrel on Wednesday to claw back some of the previous day’s 6% plunge, lifted by a report of an unexpected decline in US crude inventories.

The American Petroleum Institute (API) said on Tuesday that last week US crude inventories fell by 1.5-million barrels, easing concerns for now that a supply glut is building up.

“The move yesterday was extremely sharp; after such moves you expect to have some rebound,” said Olivier Jakob, analyst at PetroMatrix. “The API reported a stock draw — it is not a big one, but at least it’s not a 10-million-barrel build.”

Brent crude, the global benchmark, was up 92c to $63.45 a barrel at 9.44am GMT and traded as high as $63.67. US crude gained 98c to $54.41. Yet Wednesday’s bounce did little to reverse overall market weakness. Crude fell more than 6% in the previous session and world equities tumbled as investors grew more worried about economic growth prospects.

Brent has fallen by more than 25% since reaching a four-year high of $86.74 on October 3, reflecting concern about forecasts of slowing demand in 2019 and record supply from Saudi Arabia, Russia and the US.

Worried by the prospect of a new supply glut, oil cartel Opec is talking about a U-turn just months after increasing production.  Opec — plus Russia and other non-Opec producers — will consider a supply cut of between 1-million barrels per day (bpd) and 1.4-million bpd at a December 6 meeting, sources familiar with the issue have said.

Still, Saudi Arabia may find taking action to support prices harder, analysts say, given US pressure to keep them low and US President Donald Trump standing by the Saudi crown prince in the wake of the murder of journalist Jamal Khashoggi.

Trump vowed on Tuesday to remain a “steadfast partner” of Saudi Arabia despite saying that Saudi Crown Prince Mohammed bin Salman may have known about a plan to murder Khashoggi.

“It is more difficult to expect a supply cut when you have the US president giving full support to Saudi Arabia and asking Saudi to maintain low prices,” Jakob said.

Analysts at JBC Energy said Trump’s statement “highlights the potential for political fallout for Saudi itself from a hefty cut in production”.

Reuters