Oil Rebounds Amid US Recession Fears

Oil rebounded on Thursday as investors bet that revived demand from China would outweigh swelling US stockpiles.

West Texas Intermediate finished a volatile session up 1.1% to $80.33 a barrel. Prices seesawed throughout the day, falling as much as 1.7% early in the day and later rising as much as 2.1% from Wednesday. The fluctuations came as JPMorgan Chase & Co. analysts raised their estimate for China’s oil demand growth, saying consumption is on track to rise to a record 16 million barrels a day. However, lingering economic growth fears in the US continued to spook Wall Street, prompting some traders to shy away from risky assets.

“The macro picture is creating a lot of friction to the rally in crude, and it will be hard for the commodity to continue to outperform in the near term until we see concrete evidence that demand is China is accelerating or macro headwinds cool down,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management. 

Traders had largely priced in the build in inventories at the Cushing storage hub — the biggest increase since April 2020 — which was a lingering consequence of a cold snap that shut down refineries last month.

Crude has endured a bumpy start to the year, collapsing 10% in the first two sessions only to rebound as China’s reopening dominates the trading narrative. The demand outlook remains the market’s swing factor, with industrialized economies looking for a soft landing as interest rates rise and China repeals Covid curbs. 

Prices:

• WTI for February delivery rose 85 cents to $80.33 a barrel in New York.
• Brent for March settlement rose $1.18 to $86.16 a barrel.

“The reopening is proceeding sooner (by one quarter) and more rapidly than we originally expected,” JPMorgan analysts, including Natasha Kaneva, wrote in a note to clients. “This opens a possibility that China is poised for a strong economic recovery that will gather steam in February, after the end of the Lunar New Year holiday.”