Oil prices rose around 1% on Thursday after posting the biggest two-day loss for the start of a year in three decades with U.S. data showing lower fuel inventories providing support and economic concerns capping gains.

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

U.S. distillate inventories fell more than expected as a winter storm gripped the United States at the end of December, data from the U.S. Energy Information Administration showed on Thursday.

U.S. gasoline stocks (USOILG=ECI) fell 346,000 barrels last week, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 486,000-barrel drop.​

Distillate stockpiles (USOILD=ECI), which include diesel and heating oil, fell 1.4 million barrels in the week, versus expectations for a 396,000-barrel drop, the EIA data showed.

“The impact of the storm during that time period is on full display here,” said John Kilduff, partner at Again Capital LLC in New York.

Brent crude futures settled higher at 85 cents, or 1.1%, at $78.69 a barrel. U.S. West Texas Intermediate crude settled up 83 cents, or 1.2%, at $73.67 a barrel.

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

Supporting prices earlier in the session was a statement from top U.S. pipeline operator Colonial Pipeline, which said its Line 3 had been shut for unscheduled maintenance with a restart expected for the products line on Jan. 7.

Tamas Varga of oil broker PVM said the price rebound early in the session was due to the pipeline shutdown and added: “There is no doubt that the prevailing trend is down; it is a bear market.”

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 U.S. 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.

By The Financial Post, January 31, 2023