Crude recovered from a steep drop on Thursday, with West Texas Intermediate pulling back from its lowest in at least a year, as the market grappled with soaring oil supplies and a worsening outlook for global demand.
Despite a large drop in U.S. crude stockpiles, widening fears about the global economy and softening demand have sent oil reeling, even in the face of turbulent conditions in the Middle East. On Wednesday, markets were unsettled by dour U.S. factory data and lackluster private payrolls growth, which converged with growing concerns about the first appearance of the Ebola virus in the U.S.
Markets have "good reasons" for shrugging off the tumultuous geopolitics in places like Iraq and Syria, Citigroup analysts said on Thursday.
"The surge in crude oil output from North America is singularly responsible for bringing the Atlantic Basin back from being crude short to being crude neutral, with prospects that by this time next year it will be crude long.," Citi wrote in a research note to clients.
Meanwhile, dark clouds are gathering over Asia and Europe, two key hubs for global demand. Although China surprised markets with better-than-expected factory data earlier this week, Europe's woes were highlighted by the European Central Bank, which disappointed markets by delaying action on a monetary stimulus package.
The risk-averse environment has also spurred demand for the dollar, which has put additional pressure on commodity prices. The potential spread of the Ebola virus may also hamper demand for crude, analysts say, particularly if it suppresses demand for fuel from commercial airlines.