Oil prices climb 1% as US fuel inventories shrink

Crude oil storage tanks are seen from above at the Cushing Petroleum Center in Cushing, Oklahoma, U.S., March 24, 2016. REUTERS/Nick Oxford

Aug 31 (Reuters) – Oil prices recovered slightly on Wednesday as data pointed to firm demand for fuel in the United States, offering respite from a 5% drop a day earlier on fears demand could suffer from China’s increasing COVID restrictions and central bank interest rate hikes.

U.S. West Texas Intermediate (WTI) crude futures jumped 82 cents, or 0.9%, to $92.46 a barrel at 0659 GMT, after falling $5.37 in the previous session due to fears of recession.

Brent futures for October, which are due to expire on Wednesday, climbed 89 cents, or 0.9%, to $100.20 a barrel, trimming Tuesday’s loss of $5.78. The most active November contract rose 88 cents, or 0.9%, to $98.72 a barrel.

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Supporting market sentiment on Wednesday, data from the American Petroleum Institute (API) showed gasoline inventories fell about 3.4 million barrels, while distillate inventories, which include diesel and jet fuel, fell about 1.7 million barrels for the week ended August 26.

The reduction in gasoline inventories was almost triple the 1.2 million barrel drop that eight analysts polled by Reuters had forecast on average. For distillate stocks, they expected a decline of about 1 million barrels.

However, API data showed crude inventories rose by around 593,000 barrels, versus analysts’ estimates of a decline of around 1.5 million barrels.

“Prices are also under pressure due to the hawkish stance of major central banks, concerns over slowing global growth and weakening demand from China,” said Sugandha Sachdeva, vice president of research at raw materials at Religare Broking.

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The main factor supporting prices at the moment is talk from members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, collectively known as OPEC+, that they may cut production to stabilize the market. OPEC+ is due to meet next on September 5.

“When it comes to OPEC cuts, I don’t think anyone thinks immediate cuts will have major effects,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Second, since the threat of a recession appears to be real, investors would be willing to let Brent hover between $90 and $110 for now, he added.

Reporting by Mohi Narayan in New Delhi and Sonali Paul in Melbourne; Editing by Christopher Cushing, Kenneth Maxwell and Kim Coghill

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