Oil prices rebound after sharp losses as supply concerns dominate

SINGAPORE (REUTERS) -  Oil prices rebounded on Wednesday (April 20) from sharp losses in the previous session as concerns about tighter supplies from Russia and Libya dominated, while industry data showed a drop in US crude inventories last week.

Brent crude futures rose 66 cents, or 0.6 per cent, to US$107.91 a barrel by 2.23pm Singapore time. US West Texas Intermediate futures, which expire on Wednesday, gained 46 cents, or 0.5 per cent, to US$103.02 a barrel.

Both benchmarks fell 5.2 per cent in volatile trading on Tuesday after the International Monetary Fund (IMF) slashed its forecast for global growth by nearly a full percentage point, citing the economic impacts of Russia’s war in Ukraine, and warning that inflation was now a “clear and present danger” for many countries.

“The sell-off yesterday on the back of the IMF revisions was probably overdone,” said Warren Patterson, ING’s head of commodities strategy based in Singapore.

“I believe that risks are still skewed to the upside, with the potential for further disruptions from Libya, but more importantly, the potential for an EU ban on Russian oil.”

Global oil prices have been volatile, pulled higher by a tighter supply outlook following sanctions on Russia, the world’s second-largest oil exporter and a key European supplier, after its invasion of Ukraine.

However, a softer global economic outlook and ongoing Covid-19 lockdowns in China that have hurt demand in the world’s top crude importer are weighing on prices.

On the supply side, the Organization of the Petroleum Exporting Countries and its allies, known as Opec+, produced 1.45 million barrels per day (bpd) below its production targets in March, as Russian output began to decline following sanctions imposed by the West, a report from the producer alliance reviewed by Reuters showed.

Russia produced about 300,000 bpd below its target in March at 10.018 million bpd, based on secondary sources, the report showed.

Other outages added to the concerns about supply. Libya’s National Oil Corporation declared force majeure at the Brega oil port on Tuesday, saying it was unable to fulfill its commitments towards the oil market.

In the United States, crude stocks fell 4.5 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday, against expectations of an increase in inventories.

Fuel demand in China, the world's largest oil importer, could begin to pick up as manufacturing plants prepare to reopen in Shanghai.

The price decline on Tuesday followed a rise of more than 1 per cent on Monday, when oil prices hit their highest since March 28 on Libyan oil supply disruptions.

Libya's National Oil Corp (NOC) warned on Monday of "a painful wave of closures" and declared force majeure on some output and exports as forces in the east expanded their blockade of the sector over a political stand-off.

NOC on Tuesday declared force majeure at the Brega oil port.

British Prime Minister Boris Johnson on a call with Western leaders on Tuesday underscored the need to increase the pressure on Russia with more sanctions and diplomatic isolation.

The possibility of a European Union ban on Russian oil continued to keep the market on edge. French Finance Minister Bruno Le Maire on Tuesday said that an embargo at an EU level was in the works.