Crude prices edged up about 1% on Thursday after dropping to a seven-month low in the prior session after Russia threatened to halt oil and gas exports to some buyers.
That price increase came despite a surprise build in U.S. crude inventories last week and concerns that China’s extension of COVID-19 lockdown measures would slow global economic activity and hit fuel demand.
U.S. crude stockpiles surged by nearly 9 million barrels last week due to a combination of increased imports and ongoing releases from government emergency reserves, the Energy Information Administration said.
The hefty build compares with the 300,000-barrel draw analysts forecast in a Reuters poll and data from American Petroleum Institute industry group showing a 3.6 million-barrel increase.
“We got beat up so bad yesterday and then the (EIA) report came out and we had a sharp drop and now we’re higher than we were before the report, which seems to suggest that the market had an inkling that this was going to happen,” said Phil Flynn, an analyst at Price Futures Group.
Brent futures rose $1.17, or 1.3%, to $89.17 a barrel by 11:37 a.m. EDT (1537 GMT), while U.S. West Texas Intermediate (WTI) crude traded $1.65, or 2.0%, higher at $83.59.
On Wednesday, both benchmarks dropped over 5% to close at their lowest levels since mid to late January.
Prices drew some support from Russian President Vladimir Putin’s threat to halt oil and gas exports if price caps are imposed by European buyers.
The European Union proposed capping Russian gas prices, raising the risk of rationing this winter if Moscow carries out its threat. Russia’s Gazprom has already halted flows from the Nord Stream 1 gas pipeline, cutting off a substantial percentage of supply to Europe.
Belgium’s energy minister proposed a cap on wholesale gas prices rather than just Russian imports.
Britain also said it will cap consumer energy bills for two years.
Concerns about the health of the global economy and expectations of falling fuel demand led to sharp oil price falls in the previous session.
Saxo Bank analyst Ole Hansen said the decline was “driven by continued demand worries related to the risk of growth-killing rate hikes from central banks battling runaway inflation and China’s continued economic struggle caused by its COVID-zero policy”.
China’s Chengdu extended a lockdown for a majority of its more than 21 million residents to prevent further transmission of COVID-19, while millions more in other parts of the country were told to shun travel during upcoming holidays.
The European Central Bank raised its key interest rates by an unprecedented 75 basis points and signalled further hikes, prioritising the fight against inflation even as the bloc’s economy is heading for a likely winter recession.
JP Morgan said OPEC+ may need to cut production by 1 million barrels per day (bpd) to “stem the downward momentum in prices and realign physical and paper markets which appear disconnected.”
The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, agreed this week to cut their output by 100,000 bpd for October.