London: Oil rose by 1% on Wednesday to move back above $76 a barrel, but was still headed for its first quarterly drop since 2008 as stresses in financial markets weighed on expectations about the pace of recovery.
Crude oil prices have fallen by 9% in the last three months, posting the first quarterly drop since the peak of the financial crisis in late 2008.
In early May US crude hit a 19-month high above $87, but concern about the debt crisis in Europe and the pace of growth in top consumers the United States and China have sent risk aversion and the dollar higher, sapping strength across raw material markets.
US crude for August rose 59 cents to $76.53 at 2:12pm, after slipping as much as 61 cents earlier in the day. ICE Brent crude rose 50 cents to $75.94.
While concerns about the strength of the recovery remain, oil prices took a boost on Wednesday after tensions over European banks’ funding issues eased.
Banks borrowed less-than-expected from a three-month tender by the European Central Bank (ECB) on Wednesday, reducing fears they have become too reliant on emergency funding ahead of the repayment of 442 billion euros in one year loans.
“It’s a little bit below our expectations,” said Michael Schubert, an economist at Commerzbank. “It’s far better (for banks) than it would have been if we had a situation of very strong demand, so it’s quite a satisfying result.”
European shares and the euro rose after the result of the tender, both of which are supportive for oil prices.
Oil has often tracked equity markets since the recession as traders bet on signs of recovery, while strength in the euro against the dollar lowers the relative price of commodities priced in the US currency.
Oil prices were also helped by an industry report showing US crude inventories fell by more than expected last week, boosting the view that demand is rising in the world’s largest energy consumer.
Hurricane Alex, which the United States said on Tuesday had forced the shutdown of a quarter of US oil production in the Gulf of Mexico, was also supportive, but it is now expected to miss Mexican oil rigs and US oilfields.
“They will only shut down for a few days, but obviously there will be an impact on next week’s inventory figures,” said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore.
“It’s the hurricane season, but I don’t think there is any potential threat just yet. Damage to oil rigs could change fundamentals dramatically.”
U.S. crude inventories fell 3.4 million barrels in the week to 25 June, industry group the American Petroleum Institute said on Tuesday, outstripping analyst expectations of a 900,000-barrel draw in the latest Reuters poll.
Gasoline stocks fell 908,000 barrels, versus analysts’ expectations of a 500,000-barrel draw, but distillates, including heating oil and diesel, rose 4 million barrels, above forecasts for a 800,000-barrel gain.
The US Energy Information Administration will publish more closely-watched government statistics on inventories and consumption on Wednesday at 8:00pm.