Oil prices rebound after sharp losses as supply concerns dominate

Oil prices rebounded on Wednesday from sharp losses in the previous session as concerns about tighter supplies from Russia and Libya dominated, while industry data showed a drop in US crude inventories last week.

Brent crude futures rose 66 cents, or 0.6%, to $107.91 a barrel by 0623 GMT while the front-month WTI crude futures contract, which expires on Wednesday, rose 46 cents, or 0.5%, to $103.02 a barrel. The second-month contract gained 64 cents to $102.69 a barrel.

Both benchmarks fell 5.2% in volatile trading on Tuesday after the International Monetary Fund (IMF) on Tuesday slashed its forecast for global growth by nearly a full percentage point, citing the economic impacts of Russia's war in Ukraine, and warning that inflation was now a "clear and present danger" for many countries.

"The sell-off yesterday on the back of the IMF revisions was probably overdone," said Warren Patterson, ING's head of commodities strategy based in Singapore.

"I believe that risks are still skewed to the upside, with the potential for further disruptions from Libya, but more importantly, the potential for an EU ban on Russian oil."

Global oil prices have been volatile, pulled higher by a tighter supply outlook following sanctions on Russia, the world's second-largest oil exporter and a key European supplier, after its invasion of Ukraine, which Moscow calls a "special operation".

However, a softer global economic outlook and ongoing Covid-19 lockdowns in China that have hurt demand in the world's top crude importer are weighing on prices.

"There still is a huge bout of uncertainty as to where the oil market is headed next and oil looks like it may continue trading in a broad range in the near term," said Howie Lee, an economist at Singapore's OCBC bank.

On the supply side, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, produced 1.45 million barrels per day (bpd) below its production targets in March, as Russian output began to decline following sanctions imposed by the West, a report from the producer alliance reviewed by Reuters showed. 

Russia produced about 300,000 bpd below its target in March at 10.018 million bpd, based on secondary sources, the report showed.

Other outages added to the concerns about supply. Libya's National Oil Corporation declared force majeure at the Brega oil port on Tuesday, saying it was unable to fulfill its commitments towards the oil market.

In the United States, crude stocks fell 4.5 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday, against expectations of an increase in inventories.

The Energy Information Administration (EIA), the statistical arm of the US Department of Energy, will release its weekly data at 10:30am EDT (1430 GMT) on Wednesday.