Oil Update – Prices slip, but head for weekly gain despite US downturn fears

Oil prices fell in early trade on Friday but were still set for a weekly gain with the market continuing to seesaw between fears of a recession hitting the US and hopes for strong fuel demand recovery in China, the world’s top oil importer.

Brent crude futures declined 35 cents, or 0.4 percent, to $84.15 a barrel by 0400 GMT, while US West Texas Intermediate (WTI) crude futures slipped 41 cents, or 0.5 percent, to $77.65 a barrel.

The downturn was partly due to a report on Thursday showing the number of Americans claiming unemployment benefits increased more than expected last week, reigniting recession fears.

“Sentiment overnight seemed to be tilted toward the downside after the jobless data in the US,” said Baden Moore, National Australia Bank’s head of commodity research. “However I expect the China demand recovery will be more material to the price outlook into (the second half of) 2023.”

An increase in China’s consumer price index (CPI) for January compared with December, with inflation approaching the target of about 3 percent that the government set last year, added an air of caution for the oil market.

“The rise in China’s CPI in January reflected the consumption demand of residents before the Chinese New Year, but the data is not as good as expected, reflecting the slow recovery stage of the economy,” said Leon Li, analyst at CMC Markets.

“Therefore, oil prices will remain volatile at this stage.”

The latest US oil inventory data this week also raised fears about a slowdown in the world’s biggest economy, with crude stocks having climbed to their highest since June 2021.

Nevertheless, Brent and WTI have jumped more than 5 percent so far this week, reversing most of the previous week’s losses as concerns about further sharp interest rate hikes by the US Federal Reserve have eased.

The market has been buoyed by Saudi Arabia’s move to increase its official crude sales prices to Asia, seen as reflecting a demand recovery in China, where crude runs are expected to increase in March.

“Refiners will likely boost run rates from March to meet domestic demand as well as export needs,” said Emma Li, analyst at Vortexa.

US inflation data on Feb. 14 will be key to risk sentiment and the dollar’s direction, analysts said.

“As inflation declines across Europe and the US, risks remain elevated that central banks will need to still deliver more tightening than what markets are pricing in,” OANDA analyst Edward Moya said in a note.