Why are oil prices rebounding from 4-year lows? Market gets breather after steep selloff

Dubai: Oil prices are showing early signs of recovery after a sharp slide, with global benchmarks bouncing from four-year lows amid signs of technical exhaustion and shifting supply dynamics. Brent crude rose to trade near $61 a barrel on Tuesday, while West Texas Intermediate climbed toward $58, following a nearly 10% drop over six straight sessions.

The rebound comes as both crude benchmarks entered oversold territory on the nine-day relative strength index — a common technical signal suggesting prices may have fallen too far, too fast. They also broke below their lower Bollinger Bands, another indicator that the market could be due for a correction. The reopening of Chinese markets after a holiday added some volume and stability to trading.

Supply-side adjustments are also starting to emerge, particularly from the U.S. shale sector. Diamondback Energy Inc., the largest independent producer in the Permian Basin, trimmed its full-year production forecast and expects a nearly 10% drop in active onshore rigs across the U.S. by the end of Q2. These cuts reflect early reactions to sustained low prices and growing pressure on non-OPEC producers.

The backdrop remains uncertain. Oil dropped earlier this week after OPEC+ confirmed it would move ahead with a planned increase in output starting in June. Saudi Arabia warned of further hikes unless all members adhere to quotas, adding to bearish momentum.

But with recent declines likely already pricing in the OPEC+ decision, market focus is shifting back to demand prospects — heavily tied to global trade tensions. “The focus is now turning from an already priced-in OPEC+ production hike towards demand, which again depends on the global trade war and especially the ability to find solutions,” said Ole Hansen, head of commodities strategy at Saxo Bank.

Adding to the cautious optimism, U.S. President Donald Trump signaled openness to easing tariffs on China, though he ruled out talks with Beijing in the immediate term. Any thaw in relations between the world’s top two economies could help bolster demand outlooks.

Elsewhere, price gauges have hinted at some weakening momentum in the physical market. The premium of Oman and Murban crude over the regional Dubai benchmark has narrowed, and the Brent futures curve — typically in backwardation — has flattened to its smallest spread since February, excluding contract expiry periods.

While risks remain, particularly around demand recovery, oil markets are currently getting a brief breather as the pace of the recent decline appears to have triggered both technical corrections and strategic supply pullbacks.

- With inputs from Bloomberg