Oil prices settled higher Wednesday, recovering from a recent wobble as traders weighed a larger-than-expected dip in U.S. crude inventories against a softer global demand outlook.

At 14:30 ET (18:30 GMT), Brent oil futures rose 0.9% to $81.71 from the Energy Information Administration showed U.S. oil inventories fell 3.7 million barrels in the week ended July 19, compared with expectations for a draw of 2.6 million barrels.

Gasoline inventories fell by 5.6M barrels, while distillate stocks, which includes diesel and heating oil, declined 2.8M, compared with expectations for a draw of 400,000 barrels and a build of 250,000 barrels, respectively. 

The larger draw in products comes as refinery activity fell to 91.6% of capacity, from 93.7% in the previous week.

Canadian wild fires threaten supply

Also helping the tone were wildfires in Canada, which have forced some producers to curtail production and were threatening a large amount of supply.

Bloomberg reported that 388,000 barrels per day of oil production is within 10 kilometers of fires that are at least 10 hectares in size. 

Oil outlook dour amid supply glut fears 

Oil prices had struggled with steep losses in recent sessions as the outlook for crude soured, especially in the face of a forecasted surplus in 2025. Concerns over top importer China and chatter over an Israel-Hamas ceasefire also weighed on crude markets. 

But tightness in oil markets is expected to abate in the coming months, with Morgan Stanley forecasting an oil surplus by the beginning of 2025. The investment bank also expects crude pricees to trend in the high $70s by next year.

ncreased global oil production, coupled with the prospect of softer demand in top importer China, is expected to keep oil markets well-supplied in the coming months.

China has been a major pain point for crude markets, amid growing uncertainty over an economic recovery in the country. Recent data showed the country’s economy grew less than expected in the second quarter, while its oil imports fell sharply in June. 

The Third Plenum of the Chinese Communist Party yielded few cues on Beijing’s plans for more stimulus.

Sentiment towards China was also on edge amid uncertainty over how a potential change in U.S. administration will affect Washington’s stance towards the country.