MELBOURNE: Oil prices turned higher on Friday as the dollar eased, but gains were capped by recession fears and fresh concerns that COVID outbreaks will dent fuel demand in China.
Brent crude oil reached $95.67 per barrel while US West Texas Intermediate crude oil reached $89.30 per barrel at 08:04 a.m. Saudi time.
Brent crude futures rose 65 cents, 0.7 percent, to $95.32 a barrel at 04:55 a.m. Saudi time. The contract was on track to end the week down just 0.5 percent.
US WTI crude futures climbed 66 cents, or 0.8 percent, to $88.83 a barrel putting the contract on course for a weekly gain of 1 percent.
Both contracts fell in early trade as the dollar moved higher then turned around when the dollar index slipped 0.3 percent to 112.67. A weaker dollar boosts oil demand as it makes the commodity cheaper for those holding other currencies.
Analysts said while demand concerns are weighing on the market, supply is still expected to be tight, putting a floor under oil prices, with Europe’s embargo on Russian crude starting on Dec. 5 and US crude stockpiles falling.
“We are not at levels that will encourage oil bulls to admit defeat just yet,” Stephen Innes, managing partner at SPI Asset Management, said in a note.
Fears of a recession in the United States, the world’s biggest oil consumer, grew on Thursday after Federal Reserve Chairman Jerome Powell said it was “very premature” to be thinking about pausing interest rate hikes.
“The spectre of further rate hikes dimmed hopes of a pick-up in demand,” ANZ Research analysts said in a note.
Adding to the gloom, the Bank of England warned on Thursday that it thinks Britain has entered a recession and the economy might not grow for another two years.
ANZ analysts pointed to signs of weaker demand in Europe and the United States with people driving less and Amazon warning of weaker sales, which could dampen demand for distillate for its deliveries.
Underscoring demand concerns, Saudi Arabia lowered December official selling prices for its flagship Arab Light crude to Asia by 40 cents to a premium of $5.45 a barrel versus the Oman/Dubai average.
The cut was in line with trade sources’ forecasts, which were based on a weaker outlook for Chinese demand.
China stuck to its strict COVID-19 curbs as cases rose on Thursday to their highest since August. Investors earlier in the week had thought the world’s largest oil importer may be moving toward easing restrictions to boost the economy.