Oil edges higher after falling to 3-year low

September 11, 2024 (MLN): Oil recovered some ground on Wednesday after its plunge to the lowest level in almost three years, with traders weighing intensifying concerns about oversupply in the market.

The global oil benchmark is down over 9% so far this year on concerns that slowing growth in the US and China, the leading consumers, will hurt consumption at a time of robust and expanding supplies.

Brent crude rose 1.50% to above $70 a barrel. On Tuesday, the global benchmark touched $68.68, the lowest intraday price since December 2021.

While West Texas Intermediate crude (WTI) was at $66.85 per barrel, up by 1.67% on the day.

Market metrics — including the shape of the futures curve — indicate that conditions are quickly becoming far less tight, with pockets further out having a brief foray into a bearish contango structure, Bloomberg reported.

Brent ticked higher on Wednesday after the American Petroleum Institute estimated US commercial stockpiles fell by about 2.8 million barrels last week, according to people familiar with the figures. Official data are due later on Wednesday.

Oil’s retreat has already seen OPEC+ postpone an output hike, stoking investor concerns that the extra barrels could be still be brought to the market closer to 2025.

The International Energy Agency — which will issue a revised monthly outlook later this week — said in August the market risked higher inventories next year even if the cartel canceled the output increase.

“The continued weakness in the oil market will be alarming to OPEC+, and in order to soothe the market, the group needs to announce policy to tackle the expected surplus in 2025,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Even if the group sticks to cuts, compliance is likely to slip.”

The slump will be a tailwind for central bankers as they press home their fight against inflation, with the Federal Reserve expected to start reducing interest rates next week, given easing price pressures and signs of a softening labor market.

It will also be a boon for nations that rely on crude imports to power their economies, such as China and Japan.

On the technical side, Brent’s tumble on Tuesday pushed its 14-day Relative Strength Index — a measure of the speed and magnitude of an asset’s move — briefly below 30, a level seen by some traders as potentially signaling a near-term rebound.

Traders are also tracking Hurricane Francine, which is expected to make landfall in Louisiana later Wednesday.

With Chevron Corp. and Shell Plc among companies taking measures, federal officials said the total amount of shut-in oil represented nearly a quarter of crude production in the Gulf of Mexico. In addition, eight refineries may lie in the system’s path.

Executives, traders and hedge funds gathered in Singapore this week for the Asia Pacific Petroleum Conference have been mostly bearish about crude’s prospects.

Goldman Sachs Group Inc. analyst Daan Struyven said the bank expected the market to flip to a glut as soon as November or early December.

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