Oil prices recovered slightly by 1 percent on Wednesday, August 31, 2022 as data pointed to a strong U.S. fuel demand, providing respite after a 5% drop a day earlier on fears that demand will suffer from increased China COVID curbs and central bank interest rate hikes.

U.S. West Texas Intermediate (WTI) crude futures jumped 82 cents, or 0.9%, to US $92.46 a barrel at 06:59 GMT, after sliding US $5.37 in the previous session driven by recession fears.

Brent crude futures for October, due to expire on Wednesday, climbed 89 cents, or 0.9%, to $100.20 a barrel, trimming Tuesday’s US $5.78 loss. The more active November contract was up 88 cents, or 0.9%, at US $98.72 a barrel.

The price which swung since the Russia-Ukraine war began six months ago have rattled hedge funds and speculators and thinned trading, which in turn has made the market whipsaw even more, as witnessed on previous day, Tuesday, August 30.

Supporting market sentiment on Wednesday, data from the American Petroleum Institute (API) showed gasoline inventories fell by about 3.4 million barrels, while distillate stocks, which include diesel and jet fuel, fell by about 1.7 million barrels for the week ended August 26.

Meanwhile, the drawdown in gasoline stockpiles is nearly triple the 1.2 million barrel drop that analysts had expected on average. For distillate inventories, analysts had expected a drop of about 1 million barrels.

Crude Stocks Rise

However, data showed crude stocks rose by about 593,000 barrels, against analysts’ estimates of a drop of around 1.5 million barrels.

As a result, prices are also under pressure because of the hawkish stance of major central banks; concerns about slower global growth; and weakening demand from China.

Some of China’s biggest cities– from Shenzhen to Dalian, are imposing lockdowns and business closures to curb COVID-19 outbreaks at a time when the world’s second-biggest economy is already experiencing weak growth.

On the supply side, oil exports from Iraq were unaffected by the worst violence seen in Baghdad for years. Clashes eased on Tuesday after powerful cleric Moqtada al-Sadr ordered his followers to end their protests.

The main factor supporting prices at the moment is talk from members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, that they might cut output to stabilise the market. OPEC+ is next due to meet on Sept. 5.

As winter approaches, energy prices could go over the rooftops partly stemming from the fact that Russia has completely halted gas supplies to Europe via a major pipeline, saying repairs are needed.

Earlier this week, EU Commission President Ursula von der Leyen promised to intervene in the energy markets in a conference in Slovenia.