SINGAPORE: Oil prices recovered some ground on Wednesday, boosted by a wider market pickup on positive news from China's
SINGAPORE: Oil prices recovered some ground on Wednesday, boosted by a wider market pickup on positive news from China's services sector, having touched their lowest in close to a month during the previous session on fears over the weakening global economy.
Brent crude was up 31 cents, or 0.53%, at $58.57 a barrel by 0619 GMT, while U.S. West Texas Intermediate futures gained 34 cents, or 0.63%, at $54.28 at barrel.
Oil prices sank to a nearly one-month low on Tuesday following data that showed U.S. manufacturing activity in August contracted for the first time in three years and euro zone manufacturing activity contracted for a seventh month in August.
But global markets bounced on Wednesday after a private survey showed that activity in China's services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year.
China is the world's second-largest oil consumer and largest importer.
"Given the tumble that we saw overnight it's probably people locking in gains on shorts or perhaps establishing new longs in anticipation we might get an announcement from Beijing (on setting a date for trade talks with the United States)," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
A short position is when an investor sells futures in expectations of falling prices while a long position is when one buys futures to profit from rising prices.
U.S. President Donald Trump on Tuesday warned he would be "tougher" on Beijing in a second term if trade talks dragged on, compounding market fears that ongoing trade disputes between the United States and China could trigger a U.S. recession.
"The oil outlook is looking significantly weaker than it did at the start of the year," Citi analysts led by Ed Morse said in a note overnight.
"Much of the perceived loosening in fundamentals is coming from the demand rather than the supply side."
The bank cut its Brent crude forecasts for the third and fourth quarters by about $10 a barrel to $62 and $64 respectively, and expects the benchmark to fall further to $53 by the end of 2020. Brent is currently about 23% lower than its peak for this year in April.
"Next year the curtailment of demand growth coming from lower GDP (gross domestic product) growth expectations and continuation of the U.S.-China trade war could shave more oil demand from the market," its analysts said.
Data due this week on U.S. inventory levels will be delayed by a day to Wednesday and Thursday because of the U.S. Labour Day holiday on Monday.
U.S. crude oil stockpiles likely declined for a third straight week, a preliminary Reuters poll showed on Tuesday.
On the supply side, Venezuela's oil exports fell in August to their lowest level in 2019, internal reports and Refinitiv Eikon data showed, following tougher U.S. sanctions.