Oil prices bounced back from the previous session’s selloff to end higher boosted by bargain buyers and profit takers and expectations that Wednesday’s weekly inventory report would see a fall in US crude stockpiles.
Light sweet crude for September delivery, the US benchmark, added 75 cents or 1.8% to settle at $42.62 a barrel on the New York Mercantile Exchange.
Brent for October delivery, the new front month contract, settled up by 7 cents or 0.1% at $48.81 a barrel to halt a three session losing streak.
“After selling precipitously over the last several days, oil prices were technically stretched and oversold on a near-term basis, leading to a bounce into the close,” Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland, told Reuters.
The gains were however capped by concerns over a slowdown in China’s economic growth and a potential slowdown for crude demand in the country.
Chinese equities led Asian stocks lower on Tuesday with the benchmark Shanghai Composite trading tumbling 6.2% even after he Chinese Central Bank injected its highest liquidity levels into the financial system in a single day.
“Fears of a sustained slowdown in China is oil’s biggest hurdle,” Phil Flynn, senior market analyst at Price Futures Group, told Market Watch.
“China is throwing a lot of money and stimulus which could keep oil demand strong and that’s likely providing some support to oil prices. We should see a drawdown in crude supply reminding us that despite the glut, U.S. refining demand is at record highs,” he said.
The government backed Energy Information Administration is however widely expected to report a draw form the country’s crude inventories during their weekly stockpile report on Wednesday.
Analysts at Citi Bank expect a weekly draw of between 1.5 million and 2.5 million barrels for the week ending August 14.
The American Petroleum Institute reported after the close of trading that Crude stockpiles in the US fell by 2.3 million barrels for the week ending August 14.
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