As the dollar dropped on Friday, oil prices started to rise, but gains were restrained by worries about a possible recession and new concerns that Covid outbreaks could reduce China’s need for fuel.
Brent crude futures rose 65 cents, 0.7 percent, to $95.32 a barrel at 0155 GMT. The contract was on track to end the week down just 0.5pc.
The price of US West Texas Intermediate (WTI) crude futures increased by 66 cents, or 0.8 percent, to $88.83 a barrel, setting the contract up for a 1 percent weekly gain.
Both contracts dropped early on as the dollar rose, but reversed around as the dollar index dropped by 0.3 percentage points to 112.67. A declining dollar makes oil more affordable for consumers using other currencies, which increases demand.
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.
The Bank of England issued a warning on Thursday, stating that it believes Britain has entered a recession and that the country’s economy may not grow for another two years.
People driving less and Amazon warning of reduced sales are two indicators of weaker demand in Europe and the United States, which might reduce the demand for distillate for its deliveries.
Saudi Arabia reduced its December official selling prices (OSPs) for its flagship Arab Light crude to Asia by 40 cents, bringing the premium over the Oman/Dubai average to $5.45 per barrel, underscoring concerns about demand.
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.
