Oil recovered from early losses as shrinking American crude and refined product stockpiles offset signs that the fragile demand recovery is under threat. Futures in New York ended the session little changed just under $41 a barrel after earlier falling as much as 4.4%. The Energy Information Administration reported a decline in U.S. crude and gasoline inventories as well as a 7.25-million-barrel draw in distillate supplies, the most since 2003, providing optimism around a tightening supply picture.
Still, a return to normal demand levels may be far off. In the U.S., applications for state unemployment benefits unexpectedly jumped last week to the highest since August and coronavirus cases are continuing to rise around the world, leading to tighter restrictions in European cities like Paris and London. Adding to the global supply picture, Libyan oil production is said to have reached 500,000 barrels a day.
Tightening U.S. crude supplies are a welcome sign for a market that’s facing the return of Libyan production and OPEC+ plans to ease production cuts in January. OPEC Secretary-General Mohammad Barkindo said the alliance won’t allow the oil market to plunge again. However, rising coronavirus cases could still put a halt to any hope of a sustained recovery.