Oil rose about 1 percent on Wednesday, recouping some of the previous session’s heavy sell-off, on growing prospects that the Organization of the Petroleum Exporting Countries and allied producers would cut output at a meeting next month to prop up prices.
After a record 12 straight days of losses and the steepest one-day loss in more than three years, the oil market reversed course after Reuters reported that OPEC and its partners were discussing a proposal to cut output by up to 1.4 million barrels per day (bpd), more than officials had mentioned previously.
Brent crude settled up 65 cents, or 1 percent, at $66.12 a barrel, after hitting a session high of $67.63.
U.S. crude futures rose 56 cents, or 1.01 percent, to settle at $56.25 a barrel, after sliding for 12 straight sessions to the lowest since November 2017.
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Prices pared gains in post-settlement trade as the American Petroleum Institute said crude inventories rose by 8.8 million barrels in the week to Nov. 9 to 440.7 million, compared with analysts’ expectations for an increase of 3.2 million barrels.
Oil markets are being pressured by surging supply from OPEC, Russia, the Unites States and other producers and worries that a global economic slowdown could cut into energy demand.
This has pushed the price of global benchmark Brent down more than 20 percent since early October, one of the biggest declines since a price collapse in 2014.
“The market has cratered over the last few weeks and the pop today is related to the chatter that producers could cut up to 1.4 million bpd in 2019,” said Gene McGillian, vice president of market research for Tradition Energy in Stamford, Connecticut.
“Maybe some of the fears of extra supplies and reduced demand have finally been priced into the market, but I wouldn’t say that a bottom has set in yet.”
As oil has crashed from its October high, natural gas futures soared as much as 56 percent during that time to a 4-1/2 year high. Oil’s latest sell-off was exacerbated as traders unwound long oil-short natural gas trades, market participants said.
The relative strength index (RSI) for both Brent and U.S. crude remained below 30, a technical level often regarded as signaling a market that has fallen too far.
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Financial firms hedging the risk incurred by selling put options to oil producers generated added downward pressure when prices fell toward option strikes, Goldman Sachs said in a note.
“This market is attempting to find a price bottom following an unprecedented 12 consecutive days of decline,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“Although the supply surplus is still relatively modest, the market is focusing on the dynamic of expansion in the overhang that will need to show signs of reversal before a price bottom can be established.”
In its monthly report, the Paris-based International Energy Agency (IEA) said the implied stock build for the first half of 2019 is 2 million bpd.
The IEA left its forecast for global demand growth for 2018 and 2019 unchanged from last month, but cut its forecast for non-OECD demand growth, the engine of expansion in world consumption.
U.S. crude output from its seven major shale basins was expected to hit a record 7.94 million bpd in December, the U.S. Energy Information Administration (EIA) said on Tuesday.
The surge in onshore output has helped overall U.S. crude production <C-OUT-T-EIA> hit a record 11.6 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
Most analysts expect U.S. output to climb above 12 million bpd in the first half of 2019.
The rise in U.S. production is contributing to higher stockpiles. Storage data from the U.S. government is due on Thursday.