Oil prices rebounded slightly on Wednesday after a steep fall in the previous session as OPEC and its allies’ decision to extend output cuts was not enough to counter investors’ concerns about the slowing global economy.
Prices were supported by widely-watched data showing a larger-than-expected drawdown in U.S. crude oil inventories, with government data due later in the day.
Brent crude futures LCOc1 for September delivery were up 49 cents at $62.89 a barrel by early trading.
U.S. crude futures for August CLc1 were up 39 cents at $56.64 a barrel. Both benchmarks fell more than 4 per cent on Tuesday as worries about a slowing global economy hightened.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers such as Russia, agreed on Tuesday to extend oil supply cuts until March 2020 as members overcame differences to try to prop up prices.
“We had a pretty sharp correction yesterday; so after that, a little rebound is expected. Globally, the market is concerned about oil demand growth potential,” Olivier Jakob of Petromatrix consultancy said.
“Extending the cut by six or nine months, it doesn’t really matter if the level stays the same.
“If you (OPEC) really wanted to target stock levels, you would need deeper cuts but Saudi Arabia has already gone beyond its cut target.”
Ahead of government data due later on Wednesday, industry group, the American Petroleum Institute (API), said that U.S. crude inventories fell by five million barrels last week, more than the expected decrease of three million barrels.
The OPEC agreement to extend oil output cuts for nine months should draw down oil inventories in the second half of this year, boosting oil prices, analysts from Citi Research said in a note.
“Keeping cuts through the end of 1Q aims to avoid putting oil into the market during a seasonal low for demand and refinery runs,” they said.