Oil prices recovered on Wednesday, after a U.S. industry report showed crude inventories fell more than expected last week, steadying after overnight losses from the impact of Hurricane Ida on U.S. refineries.
Prices rose ahead of the OPEC+ meeting at 1500 GMT where the Organization of the Petroleum Exporting Countries (OPEC), Russia and allies are expected to stick to a plan to add 400,000 barrels per day (bpd) each month through December.
Brent crude futures for November gained 49 cents, or 0.7%, to touch $72.12 a barrel by 0414 GMT while U.S. West Texas Intermediate (WTI) crude futures for October was at $69.00 a barrel, up 50 cents, or 0.7%.
Tuesday's report from the American Petroleum Institute (API) that showed a bigger-than-expected drop in U.S. crude inventories was bullish and is supporting prices, Avtar Sandu, a senior commodities trader at Phillips Futures said.
U.S. crude stocks fell by 4 million barrels for the week ended Aug. 27, according to two market sources, citing API figures on Tuesday.
Ahead of the weekly Energy Information Administration report due at 10:30 a.m. EDT (1430 GMT) on Wednesday, a Reuters poll of analysts estimated crude stocks would drop 3.1 million barrels. [EIA/S]
However, U.S. crude prices are expected to remain under pressure as offshore oil and gas production in the Gulf of Mexico is gradually recovering, but refinery operations will likely take longer to return to normal, analysts said.
A total of 2.3 million bpd of refining capacity, or 13% of U.S. capacity, was shut in Louisiana due to Hurricane Ida, the U.S. Department of Energy estimated. At the same time, about 94% of oil and natural gas production remained suspended in the U.S. side of the Gulf of Mexico.
Power outages are likely to slow reopening of the processing plants, but Exxon Mobil (NYSE:XOM)'s 520,000 bpd Baton Rouge complex was preparing to restart on Tuesday.
"We see a risk that the loss of U.S. refinery demand will be greater and more prolonged than the loss of crude supply," Bjornar Tonhaugen, head of oil markets at Rystad Energy, said in a note, adding that it could weigh on WTI prices through September.
Despite an expected swift return of U.S. crude production, OPEC+ expects the market to be in deficit at least until the end of 2021, OPEC+ sources said.
"This should provide comfort to the group that they can proceed with their planned monthly 400,000 bpd increase in production," ANZ Research analysts said in a note.