Oil prices staged a comeback as oversold conditions brought some buyers back to the market, but still remained at six and a half year lows on lingering concerns over the global glut and the outlook for demand.
Light sweet crude for October delivery added $1.07 or 2.8% to settle at $39/31 a barrel on the New York Mercantile Exchange. Based on the most active contracts, however, the US benchmark remained at its lowest in six and a half years.
Brent for October delivery, the global benchmark, ended 52cents or 1.2% higher at $43.21 a barrel on the London based ICE Futures Exchange.
“Anything the (Chinese) government does that is viewed as credible will help the market,” Amrita Sen, a market analyst at Energy Aspects, told the Wall Street Journal.
“[However], the broader theme is still that demand is very robust and it’s the supply side that’s been the problem…Prices need to be lower for longer to make sure the supply side start reacting.”
Analysts however expected the rally to be short lived with most market players expecting that oil stockpiles grew last week.
Industry group American petroleum Institute reported later on Tuesday that crude stockpiles in the US fell by an unprecedented 7.6 million barrels last week.
The government backed Energy Information Administration is expected to announce its weekly oil inventory data on Wednesday.
Analysts polled by Reuters predicted a consensus one million barrel growth in crude stockpiles in the US for the week ending 21 August.
Also expected to exert pressure on oil prices is the expected continued deterioration of the Chinese Economy, a hike in the lending rates by the Federal Reserve by the end of the year and the continued resurgence of the dollar against the other major currencies/.
A stronger dollar is bearish for the demand of commodities denominated in dollars like oil as it makes them more expensive to afford to holders of foreign currencies.
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