Meanwhile, analysts debate whether or not the oil market will tighten: File Image/Pixabay
A rapidly growing bearish sentiment in oil trading circles reached a point on Wednesday where not even a huge draw in U.S. stockpiles could prevent the commodity from yet again shedding earlier gains, this time on the order of 1 percent.
Brent dropped 82 cents, or 0.9 percent, at $83.21 per barrel, and West Texas Intermediate declined 75 cents, or 0.9 percent, at $78.89, after PMI surveys revealed that Japan logged shrinking factory activity for a third straight month.
Also, Euro zone business activity declined more than expected, and the UK's economy was said to be in danger of falling into recession.
As for the U.S., the PMI surveys suggested that growth was at its weakest in August since February.
The oil market continues to price sizeable deficits
The news caused fears for more bank rate hikes to shift to expectations that when Federal Reserve, European Central Bank, Bank of England, and Bank of Japan officials meet on Thursday, the outcome will be interest rates staying put for the time being.
Meanwhile, the Energy Information Administration reported on Wednesday that U.S. crude inventories fell by 6.1 million barrels in the week to Aug. 18 compared to forecasts for a 2.8 million-barrel drop; however, gasoline stocks climbed 1.5 million barrels last week compared to estimates for a 888,000 barrel drop.
For its part, Goldman Sachs noted that lower OECD commercial stocks could add $2 to its end-2023 Brent outlook of $86 per barrel: "The main reason for oil outperformance is that the oil market continues to price sizeable deficits," analysts wrote, adding that draws cut bearish risks of what they previously deemed to be "persistently higher-than-expected inventories."
Wednesday's trading was also affected by the prospect that talks between Washington and Venezuela to explore easing sanctions could lead to a slowdown in the tightening of global supplies, something that would presumably be aided by observed exports from Iran reportedly surging this month above 2 million barrels per day (bpd), thanks to renewed diplomatic efforts with the U.S.
However, as always in the oil market conflicting factors have the power to ruin any forecast, and in this case five Wall Street analysts told media they think Saudi Arabia is likely to extend its voluntary 1 million barrel oil supply cut for a third month into October; if this proves to be the case, it would help support the International Energy Agency's earlier prediction of an oil shortage of about 1.7 million bpd during the second half of the year.