Crude oil futures tick higher on bargain hunting after overnight plunge

0317 GMT: Crude oil futures were marginally higher in mid-morning trade in Asia Aug 5 amid bargain hunting by investors, following an overnight plunge of up to 3.4% on bearish US inventory data and a weaker-than-expected US jobs report.

At 11:17 am Singapore time (0317 GMT), the ICE October Brent futures contract was up 26 cents/b (0.37%) from the previous close at $70.64/b, while the NYMEX September light sweet crude contract rose 29 cents/b (0.43%) at $68.44/b.

"Crude oil prices rebounded slightly after falling 7.8% over the last three sessions, pointing to a possible return of bargain hunting," said IG DailyFX Strategist Margaret Yang Aug 5.

Investors were looking to buy the dip after prices for both benchmarks settled lower by 2.80%-3.42% overnight.

Markets had been rattled after the US Energy Information Administration reported total US commercial crude oil stocks climbed 3.63 million barrels to 439.23 million barrels in the week ended July 30, upsetting expectations of a draw after American Petroleum Institute data released late-Aug. 3 showed a US crude draw of 879,000 barrels.

The crude build comes as exports fell 590,000 b/d to 1.9 million b/d, a 12-week low, while total refinery crude demand edged 50,000 b/d higher, but still fell more than 5.5% behind the five-year average.

The latest EIA report will likely reinforce expectations among investors that the global oil demand recovery was faltering amid a worrying spike in COVID-19 cases worldwide.

China is currently battling its worst outbreak since the virus first emerged in Wuhan in late 2019. The country on Aug 4 reported 71 new locally transmitted cases, data from the National Health Commission showed, up from 61 the day before and the highest daily tally since Jan 30. Travel across the country has been sharply curtailed as the authorities impose movement controls to contain the virus.

"Flights in and out of Beijing have been cancelled, which has already prompted China's National Petroleum Corp to warn that 5% of short term oil demand could be wiped out," ANZ analysts said in a note.

"The key concern for the market remains the spread of the delta variant in China and the tougher mobility restrictions that have been imposed in some regions as a result," said ING analysts Warren Patterson and Wenyu Yao.

In the US, the Centers for Disease Control and Prevention reported 103,455 new COVID-19 cases in the country for Aug 3. Its seven-day moving average was up by more than six times since the start of July.

Further compounding the weakness was an ADP jobs report released Aug. 4 showing US payrolls added just 330,000 jobs in July, well under market expectations of around 683,000. The official Labor Department unemployment report for July is expected Aug. 6.

"The near-term outlook is clouded by a rapid spread of the Delta variant around the globe and a slowing economic recovery in China. The US ADP private report also disappointed investors, underscoring a fragile labor market condition. Therefore, this technical rebound may not last," said Yang.