Oil rose on Thursday, recovering modestly from this week’s three-week lows, after record Chinese crude imports soothed some concern that demand in the world’s largest commodity buyer may be flagging just as global supply is rising.
Record U.S. crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019 pushed the price of Brent oil to its lowest since mid-August earlier in the week.
Brent crude futures rose 71 cents to $72.78 a barrel by 1007 GMT, while U.S. crude futures gained 55 cents to $62.22.
“Crude oil prices are being supported by a jump in October Chinese crude oil imports … thirst for the black stuff has increased amongst domestic teapot refiners,” PVM Oil Associates strategist Tamas Varga said.
China’s crude imports rose 32 percent in October compared with a year earlier to 9.61 million barrels per day (bpd), customs data showed on Thursday.
“Crude oil imports rose … as uncertainty around tariffs on U.S. imports and sanctions on Iran eased,” ANZ bank said.
Tempering some of the enthusiasm was data showing U.S. output reached a new record high of 11.6 million bpd, and a forecast that it would grow far more quickly next year than many previously expected.
The United States has now surpassed Russia to become the world’s largest oil producer and the Energy Information Administration said this week it expects output to top 12 million bpd by the middle of 2019, thanks to shale oil.
Production has not just risen in the United States, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, and threatens to overtake demand next year.
Even with U.S. sanctions on Iranian oil in place, the perception among investors is that there is more than enough supply to meet demand, as reflected by the front-month January Brent futures contract trading at a discount to February.
This price structure, known as contango, materialises when traders and investors believe supply to be greater than demand and therefore have more incentive to store oil, rather than sell it, thereby creating an even larger pool of unsold crude.
“OPEC and Russia may use cuts to support $70 per barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.