Crude oil futures were marginally higher in mid-morning trade in Asia Tuesday, amid mild short-covering after the overnight plunge that saw both benchmark contracts drop by more than a dollar.
Also, expectation among analysts for US crude stocks to have declined in the previous week provided some support to prices.
At 11:25 am Singapore time (0325 GMT), the August ICE Brent crude futures rose 11 cents/b (0.15%) from Monday's settle to $75.40/b, while the NYMEX July light sweet crude contract rose 34 cents/b (0.53%) to $65.09/b.
Despite a weaker dollar and stronger US equities, crude prices plunged during Monday's trading session as traders prepared for the potential increase in supply from OPEC producers and Russia.
"It is only natural that after last night's fall in prices there is some short-covering this morning pushing prices slightly up, " OCBC Commodity economist Barnabas Gan said.
Moreover, analysts surveyed Monday by S&P Global Platts expected crude stocks to have fallen 1.3 million barrels for the week ended June 2.
Further stock draws appeared likely, as the uptick in seasonal refinery demand typically draws barrels from storage from late spring through August.
Analysts were looking for refinery utilization to have increased by 0.8 percentage points last week to 94.7% of capacity. If confirmed, that would mark the fourth straight weekly increase.
Gasoline stocks were expected to have fallen by 600,000 barrels for the week ended June 2, according to analyst expectations. If refinery activity did pick up, the question would be whether demand proved sufficient to absorb the extra supply, analysts said.
Preliminary data on last week's US crude and product inventory level is due for release from the American Petroleum Institute later Tuesday and the more definitive numbers are due from the US Energy Information Administration Wednesday.
Despite the slight uptick in prices this morning, analysts maintained a relatively bearish medium term outlook for prices, citing the possibility of OPEC and non-OPEC producers increasing their supplies.
"It is important to pay close attention to Saudi Arabia's rhetoric," Gan said. "Market is already assuming that supply is set to increase from the second half of 2018," he added.
Last week, Saudi Arabia's energy minister Khalid Al-Falih said the OPEC-led coalition planned to conduct consultations with various countries on potential gradual increase in oil production.
OPEC is set to meet on June 22 to take a call on their oil supply policy.
Analysts also pointed out that the latest data from the US Commodities Futures Trading commission showed an increase in long positions and a fall in short positions.
"The prospect of OPEC and Russia expanding their oil production in the second half of the year is prompting speculative financial investors to withdraw further," Commerzbank said in a note Monday.
"Net long positions find themselves at their lowest level since late October 2017 in the case of WTI, and since early September 2017 in the case of Brent. Thus, the speculative excess has been largely eradicated," they added.
As of 0325 GMT, the US Dollar Index was up 0.01% at 94.02. - Platts -