Oil Bounces Back On Profit Taking

By Timothy Puko And Georgi Kantchev 

        Oil prices rebounded Tuesday as bargain buyers and profit takers outweighed some of the pressure from Chinese economic concerns and strong supply that have recently added to oil's fall.
        West Texas Intermediate crude hit a six-year low just a day ago, causing many bearish traders to hesitate on selling more futures, analysts said. Crude has had such a large and steady collapse--down about 60% from 2014's highs--that many will use the opportunity of a new low to buy back contracts to cash out winning bets, analysts said. That can temporarily bid up prices.
        Light, sweet crude for September delivery gained 75 cents, or 1.8%, to settle at $42.62 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, gained 7 cents, or 0.1%, to $48.81 a barrel on ICE Futures Europe.
        "Downside price momentum across the (oil) complex appears to be subsiding given the market's ability to accept the overnight plunge in Chinese equities with only limited selling," Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates, said in a note to clients.
        China led Asian markets lower with the Shanghai Composite Index tumbling 6.2%. China's central bank injected the largest amount of cash into the financial system on a single-day basis in almost 19 months, signaling Beijing's growing concerns over capital outflows after the yuan's recent weakening. Oil traders have been focused on how slowing economic growth in the world's second-biggest oil consumer could impact crude demand.
        Despite the small bounce, WTI crude is down 20% for the year.
        "A lot of ground has been covered, so people are going to be defensive" and pause any aggressive selloff, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston
        Few, however, believe that will lead to lasting gains. The global glut responsible for oil's price collapse shows few signs of abating with strong supply coming from big producers like the U.S., Russia and the Organization of the Petroleum Exporting Countries, a 12-nation oil cartel.
        "There are still no clear signs that the global market is undergoing a rebalancing process as there are still no signs that production is dissipating anywhere in the world," Dominick Chirichella, analyst at the Energy Management Institute, said in a note.
        Traders are waiting on weekly inventory data from the U.S. Energy Information Administration, which is due Wednesday at 10:30 a.m. EDT. Estimates from 12 analysts surveyed regarding the EIA report show that U.S. oil inventories are projected to have fallen by 1.1 million barrels, on average, in the week ended Aug. 14.
        The American Petroleum Institute, an industry group, said late Tuesday that its own data for the same week showed a drawdown of 2.3 million barrels in crude-oil supplies, according to sources. The group said that gasoline supplies fell by 1.5 million barrels, sources said. API said U.S. distillate stocks increased by 776,000 barrels in the week, according to sources.
        Even though official data suggest U.S. oil output has peaked in March, it has held near multi-decade highs, at around 9.5 million barrels a day. Anxiety over supply has risen in recent weeks, on news that U.S. shale oil drillers have added rigs despite the low prices.
        "Before crude can go up next year, increasingly, we feel crude has to fall once more to cause the final flush out in supplies," analysts at Energy Aspects said in a report. "In the near term, [WTI] crude can potentially continue to head lower into the $30s...Currently, there is no floor to prices as such."
        Gasoline futures settled down 0.74 cent, or 0.5%, at $1.6468 a gallon. Diesel futures gained 0.38 cent, or 0.3%, to $1.5586 a gallon.
        --Chao Deng and Nicole Friedman contributed to this article.
        Write to Timothy Puko at tim.puko@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com
        (END) Dow Jones Newswires

        August 18, 2015 17:04 ET (21:04 GMT)