Oil Edges Ahead As Risk-On Sentiment Buoys Broader Markets
Oil wiped out early gains as fears over an economic slowdown continue to weigh on the outlook for demand.
(Bloomberg) -- Oil prices rose in tandem with Wall Street but were likely to remain choppy as traders contend with both a dimming demand outlook and tightening crude supplies.
West Texas Intermediate futures traded near $86 a barrel, rising in a topsy-turvy session that earlier saw prices below $85. Oil reversed course to rise as equities rose and the dollar slipped. Crude’s fundamentals face substantial headwinds with demand anticipated to slow as China adheres to its Covid Zero policy and the US Federal Bank is expected to further raise interest rates next month.
In a speech on Sunday opening the 20th Communist Party congress, Chinese President Xi Jinping signaled no change in direction for China’s strict Covid Zero policy, a strategy that has dragged on its economy this year. Sluggish growth in China has added to a raft of bearish factors for oil, including aggressive monetary policy by central banks to try and tame inflation and a stronger US dollar.
“Even with the expected demand destruction, we’re still seeing very tight supplies for diesel and distillates,” said Dennis Kissler, senior vice president at Bok Financial Securities. “That’s keeping the buyers present in crude.”
The International Energy Agency last week warned that OPEC+’s output curbs could tip the global economy into recession, while the US criticized the cuts. White House National Security Adviser Jake Sullivan said options for reevaluating US-Saudi relations include “changes to our approach to security assistance.” He spoke Sunday on CNN’s “State of the Union.”
“Broadly, the path of least resistance remains downward, under continuing pressure from economic and oil demand concerns,” said Vandana Hari, the founder of Vanda Insights.
WTI futures fell almost 8% last week with slowdown fears dominating the picture.
Nonetheless, supply concerns remain. Trading houses and refiners are racing to book storage tanks in Rotterdam in the coming months on expectations of a supply crunch after European Union sanctions on Russia take effect, according to a storage official at Koninklijke Vopak NV. The storage company has seen heightened inquiries about using its tanks to bring in Russia’s Urals grade into the northwest Europe refining hub up to the Dec. 5 cutoff, the official said.
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