Many observers pointed to tropical storm Hermine as the reason behind the big drop.
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Brent and West Texas Intermediate crude futures were on course to gain about 5 percent this week following two consecutive weeks of declines.
Operators shut 192,000 b/d of oil production last week as the storm that became Hurricane Hermine moved through the Gulf of Mexico. Saad Rahim, chief economist at oil trading firm Trafigura, said: “The market has yet to even start working through millions of barrels of inventories accumulated during the downturn”. “You aren’t going to see a 14-million-barrel build next week, but it’s safe to say a build in the 6 to 8 million range is likely”.
The majority of oil traders said market re-balancing has been pushed back by at least six months from their projections in early 2016 because of higher-than-expected production from Iran and Saudi Arabia, coupled with the resilience of USA shale output.
NYMEX crude for October delivery was down 35 cents at $47.27, after settling up $2.12, or 4.7 per cent, on Thursday.
Meanwhile, the FTSE 100 traded 0.55 percent higher at 6,884 by 10:00 GMT. November Brent crude on London’s ICE Futures exchange LCOX6, +1.77% rose 1.3% to $48.61 a barrel.
Benchmark Brent crude oil rose 75 cents a barrel at $48.73, while the U.S. light crude edged up 85 cents at $46.35, Reuters reported. “That was not expected”, said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York. The weakening dollar is also boosting the appeal of commodities as an investment.
Wednesday evening the American Petroleum Institute (API) reported that crude inventories plunged by 12.1 million barrels in the week ending September 2.
On Wednesday, the British industrial production increased 0.1 percent m/m in July, the market was expecting a fall of 0.2 percent m/m, from up 0.1 percent in June. The stockpiles remain at their highest seasonal level since at least 1982.
Russian average oil production rose close to 11 million bpd during September 1-7, industry sources told Reuters, from 10.71 million bpd in August.
While the summer driving season ended on a bullish note, it is unlikely that data covering a single week will upend the overarching narrative of surplus inventories weighing on prices despite strong demand.
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Al-Falih and Algerian Energy Minister Noureddine Bouterfa will meet with OPEC Secretary General Mohammed Barkindo in Paris on Friday, Bouterfa said. Traders cited hopes for a global deal on stabilizing crude output after Saudi Arabia, the leading oil producer inside OPEC, and Russian Federation, the biggest producer outside the group, agreed on Monday to cooperate in oversupplied markets. Nigeria, Libya and Iran all hope to resume lost production after their output was severely constrained in recent years.
