By Peter Nurse
Investing.com -- Oil prices edged higher Tuesday as further signs of the tight supply overshadowed global recession worries as well as concerns Chinese demand will be hit by mobility curbs to combat fresh COVID cases.
By 9:05 AM ET (1305 GMT), U.S. crude futures traded 1.9% higher at $123.18 a barrel, while the Brent contract rose 1.8% to $124.46 a barrel.
U.S. Gasoline RBOB Futures were up 1.5% at $4.0958 a gallon.
Global supply has been hit by the bans on Russian oil since February’s invasion of Ukraine, but this tightness has also been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports.
Additionally, although the Organisation of Petroleum Exporting Countries and allies have announced a gradual increase in nominal production, many of the group’s members are struggling to meet their production quotas.
This has meant that the market has been able to weather concerns about a global recession caused by central banks aggressively tightening monetary policy to combat soaring inflation as well as China’s latest COVID outbreak.
Beijing, the capital city, is in the middle of three days of mass testing to try and contain the recent surge of COVID cases just as restrictions in the country were being eased and fuel demand was expected to firm.
Despite these Chinese worries, OPEC kept to its forecast that world oil demand will exceed pre-pandemic levels in 2022, after releasing its monthly report earlier Tuesday.
The group maintained its forecast that world demand would rise by 3.36 million barrels per day in 2022, while acknowledging that the situation in Ukraine as well as fresh COVID developments offer considerable risks.
“The stubbornness of crude to sell off in the current environment shows how concerned the market is about tightness,” said analysts at ING, in a note. “These concerns are unlikely to ease anytime soon, given uncertainty over how Russian oil supply will evolve, the limited capability of OPEC to increase output significantly and the tight refined products market as we head deeper into summer.”
Attention later in the session is likely to focus on the release of the weekly U.S. inventory data from the industry body American Petroleum Institute, ahead of Wednesday’s official numbers from the U.S. Energy Information Administration, for clues on how tight crude and fuel supply remain in the world’s largest consumer.