On Wednesday, oil prices recorded their largest single-day increase in a month. Traders believe that a recent drop in oil prices could hinder global crude supply growth, which has been a key factor driving up oil prices. The price of the US WTI crude oil near-term contract fell to $57.46 per barrel on October 16, the lowest level since early May, and closed at around $57 on Tuesday. Phil Flynn, a senior market analyst at Price Futures Group, mentioned to MarketWatch that with oil prices hitting recent lows, US crude producers have begun to slow down production—partly based on a recent decline in the number of active oil drilling rigs in the US. This expectation of declining output led to a 2.2% increase in the December WTI crude contract on Wednesday, closing at $58.50 per barrel. According to Dow Jones Market Data, this marks the largest single-day increase since September 24. In the afternoon, the US Treasury announced further sanctions on Russia's two largest oil companies to pressure Moscow into agreeing to a ceasefire with Ukraine. Following this news, the oil price gains accelerated. Flynn noted that based on "on-the-ground reports" and data from the Railroad Commission of Texas, signs of output decline are emerging in the market. Baker Hughes Co.'s weekly data on active US oil rigs remained unchanged at 418 last week, following two consecutive weeks of decline, suggesting potential future production reductions. Neil Dutta, head of economics at Renaissance Macro, referenced the Dallas Fed's first-quarter energy survey in a report on Tuesday, stating that exploration and production companies reported the average breakeven price for profitable new oil wells at $65 per barrel. Dutta wrote, "Current oil prices are about $8 below this 'profitability threshold', hence we expect drilling activity and capital expenditure to continue declining." Supply and demand outlook Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth, pointed out that globally, crude oil traders have previously been concerned about oversupply; however, the production increase announced by OPEC+ has "fallen short of expectations." She believes that the actual production increase by OPEC+ is nearly 50% less than planned, hence "the anticipated surge in crude oil supply has not materialized fully." Babin also mentioned that despite prior conservative market expectations for crude oil demand, actual consumption has been better than many anticipated. Additionally, she noted reports that the US and India might reach an agreement to reduce India's imports of Russian crude oil, bringing this topic "back into discussion", which increases the likelihood of tightening global crude stockpiles. Domestically, the US Energy Information Administration (EIA) reported an unexpected decrease of 1 million barrels in US commercial crude inventories on Wednesday. Meanwhile, the US government separately announced plans to increase purchases for the Strategic Petroleum Reserve (SPR). Michael Lynch, president of Strategic Energy & Economic Research, stated that while the decline in US crude inventory is modest, it indicates strong overseas demand for US crude and its products. He suggested this could be due to ongoing attacks on Russian oil infrastructure in Ukraine, impeding Russian exports and thereby boosting demand for US crude. The US Department of Energy announced plans to purchase 1 million barrels of crude oil for its Strategic Petroleum Reserve, a move that was not surprising given that Trump previously indicated intentions to replenish this reserve. Matt Smith, chief analyst at Kpler for the US, noted that given the significant drop in oil prices, this SPR repurchase is "quite like bottom fishing" and is a reasonable move. He also pointed out that Saudi Arabia’s de facto leader Mohammed bin Salman is scheduled to visit the US next month to meet with Trump, saying, "the timing is intriguing"; he believes this might imply that Trump will "provide some support for oil prices through SPR purchases, helping both Saudi and US producers." Babin further told MarketWatch that in terms of global crude flows, the quantity for this SPR purchase is not large, but market signals and tone have changed. She stated that US Energy Secretary Chris Wright seems "less focused on suppressing oil prices and more on rebuilding support through ongoing purchases," which could be one of the reasons for the rebound in oil prices on Wednesday. However, Babin believes that looking ahead, given that the crude oil market positions still "favor shorts, and geopolitical risks are escalating," oil prices may maintain their increase in the short term, but by year-end, WTI crude prices might still fluctuate between $55 and $65 per barrel. Babin suggested that for oil prices to break through this range and rise substantially, the market may need to meet one of the following conditions: OPEC+ pauses production increases, demand improves, geopolitical tensions affecting crude exports escalate, or inventory increases are lower than expected.