🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Oil rises as U.S. inventories shrink, but recession fears persist

Published 08/12/2022, 03:32
© Reuters.
LCO
-
CL
-

By Ambar Warrick

Investing.com -- Oil prices rose on Thursday as data showed U.S. inventories shrank at a faster-than-expected rate, although rampant fears of a recession dimmed the outlook for crude markets after causing sharp losses this week.

An increasing number of market participants warned that high U.S. inflation and rising interest rates could bring about a recession in 2023, with economic growth expected to cool significantly from current levels.

This dulled sentiment towards crude, pushing prices to their weakest levels this year. But markets took some relief from data showing U.S. inventories shrank more than expected in the week to December 2, signaling some near-term tightening in the country’s crude supply.

Brent oil futures rose 1% to $77.95 a barrel, while West Texas Intermediate crude futures rose 1.1% to $72.84 a barrel by 22:30 ET (03:30 GMT). Both contracts lost more than 9% so far this week, and were trading just above their weakest level since end-2021.

China, the world’s largest crude importer, announced the relaxing of more COVID-related restrictions this week - a move that is eventually expected to help support global oil demand.

The country is reconsidering its strict zero-COVID policy amid a wave of unprecedented public protests against the policy, as well as deteriorating economic growth.

But given that China is facing its worst COVID outbreak yet in terms of daily infections, analysts expect some uncertainty over the reversal of zero-COVID in the coming months.

While U.S. crude inventories shrank more than expected, production surged to its highest level since August, a move that is likely to offset tightening supply.

A bigger-than-expected rise in gasoline and distillate inventories also drove up concerns over slowing consumer demand for fuel, which is a major driver of U.S. oil consumption.

Focus this week is on U.S. producer inflation data for November, which is expected to provide more cues on the path of inflation.

While price pressures eased more than expected in October, they remained well above the Federal Reserve’s target range, which could invite more interest rate hikes by the central bank.

Rising interest rates weighed heavily on crude markets this year, with analysts warning that a sustained rise in borrowing costs could further depress demand in the coming months.

The Fed is expected to hike rates by a relatively smaller margin next week in its final meeting for December. But the central bank has warned that U.S. rates could peak at higher-than-expected levels.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.