Oil rebounds after biggest drop in decades at start of year

Oil rebounded over 2 per cent on Thursday after posting the biggest two-day loss for the start of a year in three decades with the shutdown of a US fuel pipeline providing support, though economic concerns capped gains.

Big declines in the previous two days were driven by worries about a global recession, especially since short-term economic signs in the world’s two biggest oil consumers, the United States and China, looked weak.

Helping drive the gains on Thursday was a statement from top US pipeline operator Colonial Pipeline, which said late on Wednesday its Line 3 had been shut for unscheduled maintenance with a restart expected on Jan. 7.

“This morning’s rebound is due to the shutdown of Line 3 of the Colonial pipeline,” said Tamas Varga of oil broker PVM. “There is no doubt that the prevailing trend is down; it is a bear market,” he added.

Brent crude was up $1.75, or 2.3 per cent, to $79.59 a barrel at 1116 GMT, while US West Texas Intermediate crude gained $1.63, or 2.2 per cent, to $74.47.

Both benchmarks’ cumulative declines of more than 9 per cent on Tuesday and Wednesday were the biggest two-day losses at the start of a year since 1991, according to Refinitiv Eikon data.

Reflecting near-term bearishness, the nearby contracts of the two benchmarks traded at a discount to the next month, a structure known as contango. ,

On Wednesday, figures showing US manufacturing contracted further in December pressured prices, as did concerns about economic disruption as COVID-19 works its way through China, which has abruptly dropped strict curbs on travel and activity.

“China’s pandemic and reopening challenges weigh on the market mood and put the bull thesis of a demand rebound under scrutiny,” said Norbert Rücker, an analyst at Swiss private bank Julius Baer.

Also weighing were inventory figures from the American Petroleum Institute, which according to market sources showed a rise in US crude and gasoline stocks.