Oil prices extended gains for a second straight session on Wednesday, rising more than 2% as supply risks tied to sanctions and geopolitical uncertainty outweighed recent demand worries. Optimism around a potential U.S.-China trade breakthrough also added to the positive sentiment.
By 06:45 GMT, Brent crude futures were up $1.24, or 2.0%, at $62.56 a barrel, while U.S. West Texas Intermediate rose $1.20, or 2.1%, to $58.44.
The rally comes after oil hit a five-month low earlier in the week, pressured by increased output and concerns that trade tensions could further erode global demand.
However, renewed geopolitical risks boosted sentiment. News that a planned summit between U.S. President Donald Trump and Russian President Vladimir Putin was postponed, coupled with Western pressure on Asian buyers to reduce purchases of Russian crude, revived fears of tighter supply.
“Despite the overall bearish sentiment driven by an oil supply glut and weak demand, the risk of supply disruption in hotspots like Russia, Venezuela, Colombia and the Middle East remains in place and prevents oil prices staying below the $60 handle,” said Mukesh Sahdev, founder and CEO of energy market consultancy XAnalysts.
Market analysts also pointed to short covering activity as another driver behind Wednesday’s gains. “After the sell-off in crypto (currency), regional banks and now gold and silver, I think we are seeing position reductions across markets, which for crude oil means short covering,” said Tony Sycamore, analyst at IG Australia.
Traders also monitored rising tensions between the U.S. and Venezuela. U.S. strikes on Venezuelan vessels in international waters were condemned by independent United Nations experts as “extrajudicial executions.” These operations, ordered by Trump in recent months, targeted at least six ships suspected of smuggling narcotics as part of a campaign against a “narcoterrorist” threat.
Meanwhile, hopes for a trade breakthrough provided additional support. Officials from the U.S. and China are scheduled to meet this week in Malaysia to continue negotiations. Trump said on Monday he expects to reach “a fair trade deal” with Chinese President Xi Jinping, though he added Tuesday that “maybe it won’t happen,” injecting uncertainty into the talks.
Adding to the bullish backdrop, U.S. crude, gasoline, and distillate inventories fell last week, according to figures from the American Petroleum Institute.
The United States Department of Energy also said it plans to purchase 1 million barrels of oil for the Strategic Petroleum Reserve. Analysts at Australia and New Zealand Banking Group noted in a client report that the plan supported prices, with the government taking advantage of lower levels to rebuild stockpiles.
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