Oil prices rose on Wednesday after an industry report showed crude stockpiles in the U.S staged a bigger drop than expected.
The trend suggests demand improvement even as the coronavirus outbreak spreads around the world.
Brent crude rose 31 cents, or 0.8 per cent, to $41.58 a barrel by 0632 GMT after declining more than one per cent on Tuesday.
U.S crude was up 35 cents, or 0.9 per cent, at $39.62 a barrel, having dropped by 1.1 per cent in the previous session.
U.S crude and gasoline stocks fell more than expected last week, while distillate inventories rose, data released by the American Petroleum Institute (API) late on Tuesday showed.
Crude inventories dropped by 8.2 million barrels to 537 million barrels, against analysts’ forecasts for a draw of 710,000 barrels.
“Investors would be keen to watch if the EIA (U.S. Energy Information Administration) … matches or confirms the API data, which would be bullish for crude oil markets despite the increased concern about the spread of the coronavirus,” said Avtar Sandu, Senior Commodities Manager at Phillip Futures.
Official inventory data from the EIA is due out later on Wednesday.
Also supporting prices was a drop in output from the Organisation of the Petroleum Exporting Countries (OPEC) to the lowest in two decades in June.
The 13-member grouping produced an average of 22.62 million barrels per day (bpd) in June after they agreed to cut output, a Reuters’ survey found, down 1.92 million bpd from May’s revised figure.
“The fall in output means that OPEC over-complied with the deal in June, with compliance coming in at 107 per cent,” ING Economics said, though noting that the over-compliance followed additional cuts by Saudi Arabia, the United Arab Emirates and Kuwait.
Those producers agreed to more cuts during June than other OPEC members.
“It is likely that compliance will slip again in July, unless we see a significant improvement in compliance from Iraq and Nigeria,” ING said.
Prices for later this year are likely to be capped, analysts said, as the world is awash with oil after the coronavirus caused demand for fuel to drop by around a third.
A Reuters’ poll of analysts indicated that oil prices will consolidate at around $40 a barrel this year, with a recovery potentially picking up in the fourth quarter.
The coronavirus continues to spread around the world with ever increasing rates of infection.
Cases now total more than 10 million with more than half a million people dying after catching COVID-19.
Meanwhile, the economic shocks of the coronavirus pandemic through lockdowns and eternal vulnerabilities might trigger income loss of around $34 billion for Nigeria and other oil-exporting countries in Africa, the International Monetary Fund (IMF) said on Tuesday.
The Director of the African Department at the IMF, Mr. Abebe Aemro Selassie, stated in his remarks at the IEA Ministerial Roundtable on COVID-19 Impact on Africa’s Energy Sector that the effects of the coronavirus crisis would be particularly weighty on African oil producers among other economies on the continent on the per capita growth basis.
The IMF’s projection put average Gross Domestic Product growth per capita of the whole continent at -49.9 per cent and that of oil exporters at -7.4 per cent.
It observed that the pandemic had put enormous strain on government budgets, causing around one quarter loss to the continent’s revenue and more than one third to African oil exporters.
“For African oil exporters the pandemic happened in an already difficult context. Since the oil price collapse of 2014, production and investment in the oil sector in most African oil exporters have been on a secular decline, for a combination of factors including structural issues, governance and security concerns in several countries (i.e., Nigeria and Libya),” it said.
Selassie observed that investment in oil extraction and refining or energy generation in Africa could be affected in the years ahead by factors ranging from demographic trends and technological changes to the urgency of tackling climate change and the potential accelerating effect of the pandemic.
“The recovery on the continent depends crucially on investing in renewable energy which offers huge potential in terms of badly needed jobs and acquiring new technological capabilities.
“It would also help fight climate change and power the development of Africa,” he said.