Oil prices rose on Tuesday (October 21), bouncing off a five-month low in the previous session, as investors reassessed expectations of a possible oversupply and sought clarity on the trade dispute between the U.S. and China, the world's two largest oil consumers.

Brent crude rose 31 cents, or 0.5%, to $61.32 a barrel, while U.S. West Texas Intermediate crude for November delivery, which expires on Tuesday, closed up 30 cents, or 0.5%, to $57.82.

Both contracts hit their lowest levels since early May on Monday, as record U.S. oil production and the decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to continue with planned supply increases raised expectations of a supply glut.

However, relatively low U.S. crude and distillate inventories helped offset some of the downward pressure on benchmark oil prices, said Bjarne Schieldrop, chief commodity analyst at SEB.

The US-China trade dispute has also raised expectations that slowing global economic growth will depress oil demand. However, both sides have sought to defuse the dispute.

US President Donald Trump, who is scheduled to meet with Chinese President Xi Jinping in South Korea next week, said on Monday that he hopes to reach a fair trade deal with his counterpart.

ANALYSIS OF DIFFERENT DIRECTION OF THE FUTURE

The structure of the WTI and Brent futures curves has begun to shift toward contango, where prices for immediate supply are lower than those for later delivery. This typically indicates abundant near-term supply and declining demand. Market participants are debating the depth of the contango.

The International Energy Agency earlier this month predicted that a surplus next year would lead to a highly upward-sloping futures curve, known as super contango. However, that hasn't materialized so far, UBS analyst Giovanni Staunovo said in a note. "Although supply concerns have resurfaced in recent weeks, we believe the oil market is oversupplied but not in a state of oversupply," Staunovo noted.

"We expect oil prices to stabilize around current levels," he said, adding that prices could come under pressure if trade tensions escalate. A preliminary Reuters poll released on Monday indicated that US crude oil inventories likely rose last week.

"The reality of the buildup appears to have finally set in, and prices will fall, creating a deeper contango in the market," said Scott Shelton, energy specialist at TP ICAP Group.

The US plans to buy 1 million barrels of crude oil for the Strategic Petroleum Reserve, Bloomberg reported on Tuesday. Reporting by Robert Harvey and Seher Dareen in London, Sam Li in Beijing, Ashitha Shivaprasad in Bengaluru; Editing by Barbara Lewis and Lisa Shumaker (alg)

Source: Reuters