Oil Recovers After Slide, Eyes On Glut Before U.S. Data

Royal Dutch Shell barrels

Oil edged higher on light short-covering on Wednesday after plumbing April lows the previous day, with investors warily eyeing a market believed to be oversupplied despite expectations of a drop in U.S. crude stockpiles.

Reuters report continues:

The U.S. Energy Information Administration is expected to announce at 10:30 a.m. EDT (1430 GMT) a drawdown of 1.4 million barrels in crude inventories for the week ended July 29. Trade group American Petroleum Institute (API) issued preliminary data on Tuesday for a 1.34 million-barrel decline.

"Right now, the supply and demand looks abysmal and rolling it into the maintenance period coming up in the fall makes it look even worse," ICAP energy futures broker Scott Shelton said, referring to the maintenance season for refineries.

"That's the perception and it may trade even worse if the equity markets continue to roll over," said the Dunham, North Carolina-based broker.

U.S. West Texas Intermediate (WTI) crude was up 10 cents at US$39.61 a barrel by 9:35 a.m. EDT (1335 GMT). On Tuesday, it settled below US$40 a barrel the first time since April.

Brent crude edged 8 cents higher at US$41.88. It hit a more than three-month low of US$41.51 in the previous day.

U.S. equities, which often influence the direction for crude prices, slipped again after hitting a three-week low on Tuesday.

"We expect to see a little bit of price consolidation from here but our target really is for US$35 WTI, which means any rebound you get will be more of a bear market correction," said Matthew Tuttle, chief executive of Tuttle Tactical Management in Riverside, Connecticut.

Oil rallied from 12-year lows of US$26-$27 in the first quarter to almost US$53 in June, boosted initially by a failed OPEC plan to freeze output and later by supply disruptions in Canada to Nigeria and Libya.

But a global glut in motor fuels and other refined products since have cut short the rebound. Concerns about slowing economies in Asia - the driver of oil demand growth - and Europe have weighed, along with near record-high OPEC output and signs of a new price war started by Saudi Arabia for crude.

"Risks for oil remain skewed to the downside in the second half of 2016," analysts at Morgan Stanley said in a report. "Supply disruptions and risk appetite were supportive April-June, but fundamental headwinds are growing, which outnumber any recent positives."