Oil prices recouped some of their losses on Thursday, after a report by the International Energy Agency warned that crude capacity cushions could be “stretched to the limit”.  Shell photo. 

Oil prices hammered on Wednesday

Oil prices gained back some of its losses from Wednesday’s session after the International Energy Agency released a report warning Thursday about spare capacity being “stretched to the limit” due to ongoing production losses in some countries and US sanctions against Iran and Venezuela.

Brent crude rose by $1.05/barrel to end the session at $74.45/barrel, rebounding from a session low of $72.67/barrel.  On Wednesday, Brent fell 6.9 per cent or $5.46/barrel, its biggest one-day drop in two years.

US crude settled down 5 cents to $70.33/barrel.  In the previous session, US crude lost 5 per cent.

John Kilduff, partner at Again Capital Management said ongoing concerns about production disruptions in Venezuela drove oil prices higher on Thursday.

“Production issues there today were a reminder that those issues are ongoing,” he told Reuters.

Norway, Canada and Libya also were struck by supply disruptions in recent weeks.

“Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit,” the IEA said in its monthly report.

“This vulnerability currently underpins oil prices and seems likely to continue doing so,” the agency said.

While concerns over supply continue, the US is intensifying talk on sanctions against Iran which is contributing to rising oil prices, said Kilduff.

The selloff on Wednesday was fuelled by concerns over the mounting trade tensions between the US and China and reports that Libya had brought some of its production back online.

The reopening of four crude export terminals in Libya means 850,000 barrels per day of crude will be available to the market.

However, in late June, the Alberta oil sands Syncrude plant was shut down following a power outage and is not expected to be fully operational until the first or second week of September.  The loss of the Canadian heavy crude will impact inventories at the US oil delivery hub.

Brian LaRose, senior technical analysts at ICAP-TA says he can see Brent recovering to over $80/barrel by the end of the year, however, if Brent goes under $70/barrel, the possibility that the market will recover as quickly is diminished.