Oil rebounds but on track for weekly fall

Melbourne — Oil rebounded on Friday as the dollar dipped, but prices were on track for a steep weekly decline on concerns about weakening demand in China and further interest rate hikes by the US Federal Reserve.

Brent crude futures clawed back 64c to stand up 0.7% to $90.42 a barrel at 4.46am GMT, but were not far off four-week lows of $89.53 hit in the previous session.

US West Texas Intermediate (WTI) crude futures rose 75c, or 0.9%, to $82.39 a barrel, but held near a six-week low. WTI is down more than 7% so far this week, while Brent is down nearly 6%.

The dollar index inched lower on Friday, making oil cheaper for buyers holding other currencies.

“I hate using the lame short-covering mantra, but there is little other than the slightly weaker greenback to trigger a bid under oil so far,” said Stephen Innes, managing partner at SPI Asset Management.

Analysts said concerns about potential lockdowns in China to curb a surge in Covid cases, which hit their highest level since April, and worries that more interest rate hikes will drive the US economy into recession cast a pall over the market.

Remarks from US Federal Reserve officials this week and stronger-than-expected retail sales data have dashed some hopes for the moderation of aggressive interest rate hikes in the US.

The Fed is expected to raise rates by a smaller 50 basis points in December after four consecutive 75 bps hikes, according to a Reuters poll.

“In the near term sentiment is likely to remain negative given the deteriorating macro picture and signs of physical weakness,” said Warren Patterson, head of commodities strategy at ING.

China, the world’s biggest oil importer, reported 25,353 new Covid-19 infections on November 17 up from 23,276 new cases a day earlier, the National Health Commission said on Friday.

“The policy settings in the city of Guangzhou in southern China, where Covid-19 cases have surged significantly, will be important to watch,” Commonwealth Bank commodities analyst Vivek Dhar said in a note. Guangzhou, a key manufacturing hub in China, is home to 19-million people.

Recession concerns have dominated this week even with the EU’s ban on Russian crude looming on December 5 and Opec+ tightening supply.

The premium for front-month WTI futures over barrels loading in six months was pegged at $2.63 a barrel, the lowest level in three months, indicating less worry about future supply.

Reuters