Oil settles 2% higher on falling US crude stockpiles, rebounds from multi-month lows

NEW YORK – Oil prices gained more than 2% on Wednesday, bouncing back from multi-month lows, after data showed a bigger-than-expected draw in US crude stockpiles, even as worries about weak oil demand in China persisted.

Brent crude futures settled up USD 1.85, or 2.42%, at USD 78.33 a barrel. US West Texas Intermediate crude gained USD 2.03, or 2.77%, to USD 75.23.

US crude stocks fell for a sixth week in a row, dropping by 3.7 million barrels to 429.3 million barrels last week, government data showed, more than analysts’ expectations in a Reuters poll for a 700,000-barrel draw.

“The story here really is that demand is stronger than people thought and overall supplies are tighter,” said Phil Flynn, an analyst at Price Futures Group. “Crude supply is below average for this time of year.”

Industry data from the American Petroleum Institute on Tuesday had shown an unexpected build in crude and gasoline inventories.

On Monday, Brent slumped to its lowest since early January and WTI touched its lowest since February, as a global stock market rout deepened on concerns about a potential recession in the US after weak jobs data.

Both oil benchmarks broke a three-session declining streak on Tuesday.

“The recovery we have gotten from the large downturn on Monday shows it was a very short-lived temper tantrum and not a market crash,” said Tim Snyder, chief economist at Matador Economics.

Lower production at Libya’s 300,000 barrel-per-day (bpd) Sharara oilfield is also adding to concerns about supply shortages.

Libya’s National Oil Corp declared force majeure in its Sharara oilfield from Aug. 7, the company said on Wednesday. NOC had said on Tuesday it would start to gradually decrease production at the field due to protests.

Tensions in the Middle East continued to stoke supply concerns.

The Middle East is bracing for a possible new wave of attacks by Iran and its allies following last week’s killing of senior members of militant groups Hamas and Hezbollah, with concern rising that the conflict in Gaza is turning into a wider Middle East war.

Iran-aligned Houthi militants on Wednesday targeted a container ship in the Red Sea and two US destroyers in the adjacent Gulf of Aden. Attacks on vessels passing through the region have forced tankers to choose longer alternate routes.

“Any escalation of the conflict in the Middle East could see a greater risk of disruptions to supplies from the region,” ANZ analyst Daniel Hynes said.

Supporting the bearish demand view, Chinese trade data showed that July daily crude oil imports fell to the lowest level since September 2022. China is the world’s largest crude importer.

(Reporting by Nicole Jao in New York; Additional reporting by Paul Carsten and Ahmad Ghaddar in London and Colleen Howe in Beijing; Editing by Mark Potter, Marguerita Choy, Rod Nickel, and Jonathan Oatis)