A string of better than expected economic data from the world’s two largest oil consumers – the U.S. and China, fanned optimism that the economic recovery was outpacing forecasts, triggering a bump in the current slump, which sent oil prices to their highest level in over a week.

And while confounding all estimates, oil extended gains in Asia after an industry report pointed to a sharp drop in U.S. crude inventories in the past week. Futures rose into the NYMEX close bouncing 0.8%, after jumping 2.7% on Tuesday.

The American Petroleum Institute (API) reported on Tuesday a bullish draw to consensus in crude oil inventories of 9.517 million barrels for the week ending September 11. Analysts had predicted an inventory draw of 1.271-million barrels.

The post lockdown period is proving tricky to fully capture the nuance and intricacies on the supply and demand side.

No one’s crystal ball is clear enough to be even 60% sure on the course of the economic recovery, let alone the weekly inventory estimates, which as usual, is proving to be a noisy data set.

Better than expected data from China

But there was a redoubtable confluence of oil market positives that started in Asia, yesterday.

China’s Industrial Production and Retail sales came in better than expected. The People’s Bank of China (PBOC) has conducted a larger-than-expected medium-term lending facility operation, and the Global Times reported that a vaccine could reach the general public in November.

All these are supportive of the usual commodity contingent and even more so for oil, which was trading very depressed.

US manufacturing activity picks up

In the U.S., manufacturing in New York state expanded in September at the second-fastest pace since 2018.

Even though many are echoing the chorus of gloomy Autumn cuts to the demand forecast, there is some glimmer of light at the end of the recovery tunnel as Brent recaptures the psychologically important $40 per barrel level.

With the economic engines in the industrial heartlands in the U.S. and China starting to fire on all cylinders, its temporarily offsetting the slump in crude prices that began in the closing week of the U.S. driving season.

Economic pick up is the key to price recovery as the market attempts to sort out the usual U.S. seasonality fracture amid low demand compounded by the Covid-19 fear gauge. People continue to work at home, so less are driving.

Any positive vaccine news will be welcome as restrictions are once again being enacted as caseloads rise.

Focus on OPEC+ meeting

The OPEC+ Joint Ministerial Monitoring Committee (JMMC) meets on Thursday, but beyond compliance stats and perhaps some resolution on catch up quota volumes, we should expect limited new news and certainly nothing to significantly bump the crude market out of its current funk.

By no means are we out of the woods just yet as there is a lot more wood to chop on the economic front going forward.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp