June 13, 2024

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Oil prices bounced back from Tuesday's plunge as supply concerns return

Oil prices bounced back from Tuesday’s plunge as supply concerns return

Crude oil storage tanks from above at the Cushing Oil Center, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo

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  • Recession fears continue to limit price gains
  • China has reported new cases of COVID across the country
  • The dollar settled at a 20-year high against the euro
  • Kazakhstan discusses procedures for handling export restrictions

LONDON (Reuters) – Oil prices rose on Wednesday to offset some of the heavy losses incurred on Tuesday as supply concerns resurfaced and surmounted persistent concerns about a global recession.

Brent crude futures rose $1.62, or 1.58 percent, to $104.39 a barrel at 0839 GMT.

US West Texas Intermediate crude jumped $1.04, or 1.05%, to $100.54 a barrel after closing below $100 in the previous session for the first time since late April.

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Both contracts on Tuesday posted their biggest daily declines since March due to recession fears and other downward pressures that also kept prices higher on Wednesday. Read more

Oil prices have seen fallout from the recovery of the dollar, which settled at a 20-year high against the euro and multi-month highs against other major currencies.

A strong US currency usually makes oil more expensive in other currencies, which may limit demand.

Renewed fears of a COVID-19 lockdown across China may also limit oil price gains. Read more

The Norwegian government intervened on Tuesday to end a strike in the petroleum sector that cut oil and gas production, ending a stalemate that could have exacerbated Europe’s energy crisis. Read more

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But analysts expect a quick recovery in oil prices as supply remains tight and front month margins rise despite Tuesday’s drop in prices.

The six-month market structure for Brent was in sharp decline at $15.12 a barrel, up just 70 cents from the day before. A pullback occurs when contracts for near-term delivery of oil are priced higher than those of subsequent months.

“The overnight price action, with both contracts trading in roughly fifteen dollar ranges, suggests more panic and forced liquidation, than a structural change in the tight supply and demand situation globally,” said Jeffrey Haley, chief market analyst at OANDA. He added, “Oil prices may be in danger of overshooting the decline.”

Meanwhile, Kazakhstan said on Wednesday it was discussing measures to address the impact of restrictions on oil exports via the Caspian Sea Pipeline Consortium (CPC), which transports Kazakh crude through Russia to the Black Sea. Read more

The corporation, which handles about 1% of the world’s oil, said on Wednesday that a Russian court had ordered a 30-day suspension of its operations, citing issues related to oil spills. Read more

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Additional reporting by Emily Chow in Kuala Lumpur and Arathi Sumasekhar in Houston. Editing by Raju Gopalakrishnan

Our criteria: Thomson Reuters Trust Principles.