Oil prices rise after US crude stockpile drop

LONDON: Oil prices rebounded on Wednesday after a steep fall in the previous session when 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 a strong US stock

market opening and widely watched data showing a larger-than-expected drawdown
in US crude oil inventories, with government data due later in the day.

Brent crude futures LCOc1 for September

delivery were trading up 95 cents at $63.35 a barrel by 1350 GMT.

US crude futures for August CLc1 were up 76

cents at $57.01 a barrel. Both benchmarks fell more than 4pc on Tuesday on
worries about a global economic slowdown.

The Organization of the Petroleum Exporting

Countries and other producers such as Russia, a group known as OPEC+, 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 5 million barrels last week, more than the expected
decrease of 3 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.

Still, signs of a global economic slowdown

hitting oil demand growth worried investors after global manufacturing
indicators disappointed and the United States opened another trade front after
threatening the EU with more tariffs.

The S&P 500 index hit a record high at the

open on Wednesday, boosted by healthcare stocks, as bets of an interest rate
cut were spurred by the fears of a slowing global economy due to simmering
trade tensions.

The U.S. trade deficit jumped to a five-month

high in May and the ADP National Employment Report on Wednesday showed that an
increase in private payrolls was well below economists’ expectations.

Barclays expects demand to grow at its slowest

pace since 2011, gaining less than 1 million barrels per day year-on-year this
year.

Morgan Stanley, meanwhile, lowered its

long-term Brent price forecast on Tuesday to $60 per barrel from $65 per
barrel, and said the oil market is broadly balanced in 2019.

Crude prices were also capped by signs of a

recovery in oil exports from Venezuela in June and growth in oil production in
Argentina in May.