Oil futures bounced early Wednesday, regaining some of the ground lost in a brutal selloff in the previous session, though analysts said worries over the outlook for crude demand as the global economy continues to wrestle with the COVID-19 pandemic will likely cap upside.
West Texas Intermediate crude for October delivery CL.1, +2.12% CLV20, +2.12% on the New York Mercantile Exchange rose 41 cents, or 1.1%, to $37.17 a barrel. November Brent crude BRN.1, +1.35% BRNX20, +1.35%, the global benchmark, rose 20 cents, or 0.5%, to $39.98 a barrel on ICE Futures Europe.
WTI tumbled more than 7% on Tuesday, while Brent dropped more than 5% to fall below the $40-a-barrel level. The selloff reflected fears over the outlook for demand as the U.S. driving season, which runs from Memorial Day to Labor Day, came to an end and concerns also rose about the outlook for global crude demand.
A stock-market plunge, which saw the Nasdaq Composite COMP, -4.11% slide into correction on Tuesday likely added to the selloff in crude and other assets perceived as risky. A rise by the U.S. dollar in reaction to rising market volatility also weighed. A stronger dollar can weigh on commodities priced in the unit because it makes them more expensive to users of other currencies.
“Considering the stronger U.S. dollar, the fairly optimistic demand estimates of most market observers and the high net long positions still held by money managers, especially in WTI, oil prices could remain under pressure for the foreseeable future,” said Eugen Weinberg, commodity analyst at Commerzbank, in a note.
Pressure on the Organization of the Petroleum Exporting Countries and its allies to take action may also increase he said. The recovery in crude prices since April was due largely to aggressive production cuts implemented by OPEC+, Weinberg said. Those cuts of 9.7 million barrels a day were scaled back to 7.7 million barrels a day beginning in August.
Weinberg questioned, however, whether OPEC members, whose economies depend to a large extent on oil exports, will be able to bear the cuts for much longer. “Consequently, the risk of their ‘cheating’ on one another and production being raised in an uncoordinated manner is fairly high,” he said.
October natural-gas futures NGV20, +0.62% were up 0.4% at $2.411 per million British thermal units.