Oil prices rose as much as nearly 3% on Wednesday before paring some gains as investors piled back into the market after a heavy rout in the previous session, with supply concerns returning to the fore even as worries about a global recession linger.
Brent crude futures rose as much as $3.08, or 2.9%, to $105.85 a barrel in early trade after plunging 9.5% on Tuesday, the biggest daily drop since March. It was last up 92 cents, or 0.9%, at $103.69 a barrel at 0243 GMT.
U.S. West Texas Intermediate crude climbed to a session high of $102.14 a barrel, up $2.64, or 2.7%, after closing below $100 for the first time since late April. It was last up 46 cents, or 0.5%, at $99.96 a barrel.
“Today is sort of a reset. No doubt there is short covering and bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.
“The fundamental story regarding global tightness is still there … The sell-off was definitely overdone,” he added.
OPEC Secretary General Mohammad Barkindo said on Tuesday that the industry was “under siege” due to years of under-investment, adding shortages could be eased if extra supplies from Iran and Venezuela were allowed.
Russia`s former president Dmitry Medvedev also warned that a reported proposal from Japan to cap the price of Russian oil at around half its current level would lead to significantly less oil in the market and push prices above $300-$400 a barrel.
On the other hand, the Norwegian government on Tuesday intervened to end a strike in the petroleum sector that had cut oil and gas output, a union leader and the labour ministry said, ending a stalemate that could have worsened Europe`s energy crunch.
By Saturday, the strike would have cut daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, while 341,000 of barrels of oil would have been lost, the Norwegian Oil and Gas (NOG) employers` lobby said.
Worries about a recession, however, have continued to weigh on markets. By some early estimates, the world`s largest economy may have shrunk in the three months from April through June. That would be the second straight quarter of contraction, considered the definition of a technical recession.
More G10 central banks raised interest rates in June than in any month for at least two decades, Reuters calculations showed. With inflation at multi-decade highs, the pace of policy-tightening is not expected to let up in the second half of 2022.
“Although crude oil still faces the problem of a supply shortage, key factors that led to the sharp selloff in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and a likely interest rate hike by the U.S. Federal Reserve as pressuring commodities prices.
“Thus, today`s rebound could be a short-term correction for bears and oil prices are likely to remain under pressure in the near future.”