By Geoffrey Smith 

Investing.com — Crude oil prices rebounded unconvincingly on Wednesday, after being hammered on Tuesday by concerns about the weakening of global demand.

By 9:15 AM ET (1315 GMT), futures were up 0.8% at $37.05 a barrel, while the international benchmark was up 0.2% at $39.84, struggling to defend the key psychological support level of $40.

Analysts say that the sell-off has been caused principally by two factors: on the one hand, the threat of fresh restrictions on economic activity in Europe, India and elsewhere due to the continued spread of the coronavirus (England reimposed limits on social gatherings on Tuesday while the surge in tourism-related cases in Europe has killed off a nascent recovery in jet fuel demand); and on the other, a marked slackening of Chinese demand after the country’s independent refiners bought crude in unprecedented amounts during the price collapse in the second quarter.

Chinese customs data cited by consultancy Oilx.co suggest oil imports fell by an average of 382,000 barrels a day in August from July.

Weaker Chinese demand has been the main cause for Saudi Arabia and – as of Tuesday, the United Arab Emirates – cutting official selling prices for the Asian market in their October loadings.

“When strong Middle Eastern producers are willing to sell-off in lower prices it is normal that the global market panics and follows suit,” said Rystad Energy oil markets analyst Paola Rodriguez-Masiu in emailed comments. “The panic is what registered the massive losses yesterday and that is why we see the minor uptick this morning.”

Paul Sankey of Sankey research said in a morning note that China had been the ‘Whale’ in the oil market akin to Softbank’s role as ‘Whale’ in the stock market over the summer.

However, the limping recovery in demand has meant that there is now “a product glut waiting to hit the market”, according to Patricia Hemsworth of Paragon Global Markets in New York.

China isn’t the only big importer whose demand has struggled to recover from the pandemic. In India, which is now the biggest hotspot in the global pandemic, August oil demand was down over 16% from a year ago, according to Ministry of Petroleum data.

The market gets an update on the supply-demand balance in the U.S. later, with the American Petroleum Institute’s on U.S. crude and product inventories. The figures are expected to show one last big draw on stockpiles before the Labor Day weekend, which typically heralds a slowdown in seasonal demand.