Oil rebounds 3% from multi-month lows on MidEast tensions, US crude stock draw; Brent nears $79/bbl

Global crude oil prices rose three per cent on Wednesday, August 7, bouncing back from multi-month lows. Data showed a bigger-than-expected draw in US crude stockpiles, even as worries about weak demand in China persisted. Geopolitical tensions in the Middle East also supported the rise in prices.

Brent crude futures were up $2.13, or 2.8 per cent, to $78.61 a barrel. US West Texas Intermediate crude rose $2.36, or 3.22 per cent, to $75.56. On Monday, the Brent crude benchmark slumped to its lowest since early January. 

Also Read: Oil bounces from multi-month lows on tight supply amid Israel-Iran conflict; Brent nears $77/bbl

WTI touched its lowest since February as a global stock market rout deepened on concerns of a potential recession in the US after weak jobs data. Both oil benchmarks broke a three-session declining streak on Tuesday.

What's driving crude oil prices?

-US crude stocks fell for a sixth week in a row, dropping by 3.7 million barrels to 429.3 million barrels last week, surpassing analysts's expectations. Analysts said that crude supply is below average for this time of year. Industry data from the American Petroleum Institute (API) showed an unexpected build in crude and gasoline inventories.

-Tensions in the Middle East continued to stoke supply concerns on Wednesday, supporting prices. 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.

-Secretary of State Antony Blinken said on Tuesday that US officials have been in constant contact with allies and partners in the region, and there is a "clear consensus" that no one should escalate the situation. Analysts said that any escalation of the conflict in the Middle East could see a greater risk of disruptions to supplies from the region.

-Supporting the bearish demand view, Chinese trade data showed daily crude oil imports in July fell to the lowest since September 2022. China is the world's largest crude importer. Oil still faces headwinds from faltering demand in China and the US, and there is a potential supply addition from the OPEC alliance for the next quarter.

Also Read: OPEC+ sticks to output policy of 5.86 million barrel pullback per day, hints at unwinding cuts from October
 

Where are oil prices headed?

Analysts said WTI crude closed above $73 per barrel yesterday, buoyed by improved global market sentiment. Concerns about a potential retaliatory attack by Iran on Israel following the assassinations of Hezbollah and Hamas leaders have also provided support. 

‘’Today, crude oil is trading above $73.5 per barrel, which aligns with stability in the Asian markets. Traders are also closely monitoring the upcoming EIA report after API data indicated a rise in US oil inventories this week by 180,000 barrels for the week ending August 2, following five consecutive declines,'' said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

Also Read: Warren Buffet buys ‘aggressively’ when US stocks dip, refrains from short-term bets: What should you do amid volatility?

Analysts also noted that crude oil exhibited significant price volatility and ended on a mixed note. WTI oil prices recovered from their lows, whereas Brent prices continued to decline amid demand concerns. The US equity markets rebounded from their lows, supporting crude oil prices at lower levels. However, prices could not sustain these gains due to a surprise build in the API inventory reports. 

‘’Crude oil prices are struggling due to fears of a recession in the United States. We expect crude oil prices to remain volatile. Crude oil has support at $71.80-71.00 and resistance at $73.10-73.80 in today's session. In INR, crude oil has support at ₹6,100-6,030 and resistance at ₹6,245-6,310,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.