Oil prices rose on Wednesday on a string of positive manufacturing data and a drawdown in U.S. crude inventories, both indicating an economic recovery and a rise in energy demand despite surging coronavirus infections around the world. Brent crude LCOc1 was up $1.19, or 2.9 percent, to $42.46 a barrel at 0900 GMT, and U.S. crude was up $1.15, or 2.9 percent, at $40.42 a barrel.

U.S. crude and gasoline stocks fell more than expected last week, while distillate inventories rose, data released by the American Petroleum Institute (API) late on Tuesday showed. "The market's main concern is demand and how COVID-19 affects it, so any hint that demand is recovering is welcomed with a price boost," said Rystad Energy analyst Louise Dickson. Official inventory data from the U.S. Energy Information Administration (EIA) is due out later on Wednesday.

The sentiment was also boosted by improving economic data around the world. In China, the manufacturing purchasing managers' index (PMI) showed factories slowly gathered steam in June after the government eased lockdowns. Germany's manufacturing sector contracted at a slower pace in June, while French factory activity rebounded into growth. A surge in new infections in the United States has worried some investors, but most are betting this will not be enough to derail a broader rebound in the global economy.

Oil Prices Rise

Oil industry
Oil industry Pixabay

The U.S. PMI, due later on Wednesday, is forecast to show that activity in June continued to recover from an 11-year low in April, while the non-farm payrolls report on Thursday is expected to show the economy added three million jobs in June. Also supporting prices was a drop in output from the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, following an agreement to curb supplies.

"Although there is still the danger of demand outages in view of increased new cases of COVID-19, OPEC+ seems to have the market under control at the moment," said Commerzbank analyst Eugen Weinberg. OPEC produced an average of 22.62 million barrels per day (bpd) in June, a Reuters survey found, down 1.92 million bpd from May's revised figure.

OPEC and Russia will likely ease record oil production cuts from August as global oil demand recovers and prices have bounced back from their lows, four OPEC+ sources told Reuters. Top oil exporter Saudi Arabia may raise its August official selling price (OSP) for crude sold in Asia, hiking for a third straight month due to rising Middle East benchmarks and a rebound in Asian refining margins, industry sources said.