Oil gained in New York and London, in a modest recovery after sinking into a bear market on Wednesday amid ballooning U.S. crude inventories and signs that demand is faltering.
Futures in New York edged 1% higher after settling 3.4% lower in the previous session. U.S. total petroleum stockpiles jumped by 22 million barrels last week, the biggest increase in data going back to 1990, government figures showed Wednesday. Data from countries representing around half of global oil consumption shows year-on-year demand growth ground to a halt in March and April, Morgan Stanley said in a note in which it cut its Brent forecast for the second half of 2019.
“Everything that could have gone wrong for oil bulls yesterday did go wrong,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “For those of us who have been expecting significant drawdowns in global oil inventories, maybe it is time to go back to the drawing board.”
Oil has fallen around 22% since late April as the U.S.-China trade relationship worsened and the White House picked a new tariff fight with Mexico. That’s caused a sharp deterioration in the demand outlook, while the American inventories data are now giving investors additional cause for worry. A meeting of the Saudi Arabian and Russian energy ministers in St. Petersburg this week may give some clues as to their response.
West Texas Intermediate futures for July rose 44 cents, or 0.9%, to $52.12 a barrel on the New York Mercantile Exchange at 10:34 a.m. in London.
Brent for August settlement added 58 cents, or 1%, to $61.21 a barrel on London’s ICE Futures Europe Exchange. It closed 2.2% lower on Wednesday. The global crude benchmark traded at a premium of $8.94 to WTI.
A combination of weak oil demand, soaring imports, record domestic production and lackluster refinery runs drove the jump in total U.S. inventories, according to Bloomberg oil strategist Julian Lee. Crude stockpiles are now at the highest level since July 2017.
The plunge of 12% in Brent crude over the three days through Monday is “highly unusual” and may be pointing to a bleak demand outlook, Morgan Stanley said in the note by analysts including Martijn Rats. The lender cut its second-quarter Brent forecast to $65 a barrel from $75 and lowered its WTI projection to $57 from $67.
The meeting in St. Petersburg will pit the Saudis, who want to extend the OPEC+ coalition’s output cuts beyond June, against the Russians, who have at best been non-committal. It will be the first face-to-face meeting between the two nations’ energy ministers since Jeddah in May, when the gap between their interests became visible.
It’s hard to pick a bottom for crude and OPEC is a bit “helpless” at the moment, Vandana Hari, the Singapore-based founder of Vanda Insights, said in a Bloomberg TV interview. “Nobody knows how demand is going to be affected this year but it’s really fear that’s driving it down right now.”
Other oil-market news OPEC and its partners will take the current “economic bearishness” into account when they meet in coming weeks, and are committed to keeping oil markets balanced this year and beyond, Secretary-General Mohammad Barkindo said. Russia is shipping more crude from its main Baltic and Black Sea ports this month than originally planned as the nation tries to lessen the impact of a contamination crisis that halted its key export pipeline to Europe. Iranian exports of crude and condensate collapsed to 350,000-400,000 barrels a day in May with the onset of tougher U.S. sanctions, from an average of 1.5 million b/d during the first quarter, according to consultant FGE. Crude futures for July fell 1.5% to 418.6 yuan a barrel on the Shanghai International Energy Exchange.