Oil prices rebounded more than 1 per cent, recovering from the previous day's fall, after Opec's upwards revision for Chinese consumption offset bearish global investor sentiment trigged by US bank failures.
Brent crude futures climbed $1.04, or 1.3 per cent, to $78.49 a barrel by 0710 GMT. US West Texas Intermediate crude futures (WTI) gained 98 cents, or 1.4 per cent, to $72.31 a barrel. On Tuesday, the benchmarks shed more than 4 per cent to a three-month low.
"The oil market has bounced back on its own after the recent sharp losses," said Toshitaka Tazawa, an analyst at Fujitomi Securities, adding some investors had used the slide to hunt for bargains.
"The Opec upgrade in Chinese oil demand outlook also lent support, though investors were still concerned over a cascading financial crisis after the recent collapse of US banks," he said, noting that whether WTI can stay above $70 a barrel is being closely watched.
The Organisation of the Petroleum Exporting Countries (Opec on Tuesday further raised its forecast for Chinese oil demand growth in 2023 due to the relaxation of the country's COVID-19 curbs, although it left total global demand steady, citing potential downside risks for world growth.
Chinese refineries processed 3.3 per cent more crude in the first two months of 2023 compared with the same period a year earlier, data showed on Wednesday, spurred by fuel export policy and independent refiners processing as Beijing's lifting of Covid restrictions led to improved margins for transport fuel.
China's demand recovery is bullish for oil prices, said Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore.
"The consensus is that the oil supply-demand balance will tighten in the second half, driven by China rebound, unless a severe global recession hits," he added.
The failure of Silicon Valley Bank and Signature Bank triggered concerns about risks to other banks following the US Federal Reserve's sharp interest rate hikes over the last year.
That also spurred speculation about whether the central bank could slow the pace of its monetary tightening.
On Tuesday, US inflation data came in line with expectations, bolstering bets on a smaller interest rate hike by the Fed at its meeting next week.
US crude oil inventories rose by about 1.2 million barrels in the week ended March 10, in line with a Reuters poll, while fuel stockpiles fell, according to market sources citing American Petroleum Institute figures on Tuesday.
On the supply side, Saudi Arabia's energy minister Prince Abdulaziz bin Salman told Energy Intelligence on Tuesday the Opec+ alliance - Opec and allied oil producers including Russia - will stick to production cuts agreed in October until the end of the year.
The International Energy Agency (IEA) will publish its monthly report later on Wednesday and the US Energy Information Administration will publish weekly inventory data at 10:30 a.m. EDT. -Reuters