LONDON: Oil rose by almost 3 percent on Wednesday to climb back above $70 a barrel after a US industry report showed a steep drop in gasoline stockpiles in the world’s largest energy consumer.
Prices had slumped to lows near $67 a barrel at one stage on Tuesday, pressured by concerns about the health of European banks and mounting tensions between North and South Korea.
But a late rally on Wall Street that spread to Asia and Europe on Wednesday lifted sentiment in the oil market. The rebound was aided by a far larger-than-expected 3.2 million barrels drop in US gasoline stocks last week, reported by the American Petroleum Institute (API).
US crude for July delivery was up $1.91 a barrel at $70.66 at 0939 GMT. Brent traded up $1.65 at $71.20 a barrel.
Traders said both commodity and equity markets were benefiting from bargain hunters swooping after European shares slumped to a nine-month low, but urged caution about the potential for a sustained rally.
"Despite the impressive reversals, there is very little indication that the bearish market psychology is about to change any time soon," MF Global analyst Edward Meir said.
"Until signs emerge that things are stabilizing in the debt markets, (even if they simply do not get any worse), we have to suspect that rallies will continue to be vulnerable in practically all the markets."
Oil prices are still down by about 20 percent from the 19-month high of $87.15 hit in early May.
While the API reported gasoline stocks fell by far more than the 200,000 decline predicted by analysts, stocks of distillates and crude oil continued to climb.
Distillate inventories, including heating oil and diesel, rose by 1.5 million barrels versus expectations of no change, while the nation’s crude stockpiles rose 616,000 barrels.
At Cushing, Oklahoma, the delivery point for the US crude contract, stocks fell 772,000 barrels from a record 37.99 million.
Later on Wednesday, traders will be watching the release of weekly fuel stocks data from the US Energy Information Administration (EIA), the statistical arm of the Department of Energy, to see if they confirm the API numbers.
"Wednesday’s DOE report could well be critical," said Peter Beutel, president of Cameron Hanover, in New Canaan, Connecticut.
"A bearish report could tip us over the edge. Bullish figures have less opportunity for creating high drama, but a clean sweep could change things."
If prices stabilize around $70 a barrel it would likely spare the Organization of the Petroleum Exporting Countries (OPEC) the need to convene an emergency meeting to discuss supply policy.
Gulf oil ministers on Tuesday played down the slide in oil prices to below that level, but many have continued to argue prices between $70 and $80 a barrel are necessary to maintain investment in future supplies.
On Tuesday, the EIA said world oil demand will continue to grow through 2030, but demand that year will be about 2.5 percent less than previously thought due to use of renewables and higher oil prices.
Global oil demand will average 103.9 million barrels per day in 2030, down from the agency’s 106.6 million bpd demand estimate in last year’s long-term outlook. –Additional reporting by Alejandro Barbajosa and Keiron Henderson