Crude oil storage tanks are seen from above at the Cushing Oil Facility, in Cushing, Oklahoma March 24, 2016. REUTERS/Nick Oxford/File Photo
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- Oil rose nearly 3% before paring some gains
- Rising interest rates, recession fears still limit price growth – analyst
- China reports new cases of COVID across the country
KUALA LUMPUR, July 6 (Reuters) – Oil prices rose nearly 3 percent on Wednesday before paring some gains as investors returned to the market after a heavy rout in the previous session as supply concerns returned to the fore even as worries about an ongoing global recession.
Brent futures rose $3.08, or 2.9%, to $105.85 a barrel in early trade, after falling 9.5% on Tuesday, the biggest daily drop since March. It was last up $1.63, or 1.6%, at $104.40 a barrel at 0650 GMT.
U.S. West Texas Intermediate (WTI) crude climbed to a session high of $102.14 a barrel, up $2.64, or 2.7%, after closing below $100 for the first time since late April. It briefly dipped into negative territory amid a stronger U.S. dollar before resuming gains and was last up $1.20, or 1.2%, at $100.70 a barrel.
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The dollar strengthened to a 20-year high against the euro and multi-month highs against other major peers as higher gas prices and political uncertainty renewed recession fears, sending investors scurrying to the safe-haven currency.
A stronger greenback typically makes oil more expensive in other currencies, which can curb demand.
“Today is kind of a reset. No doubt there is short covering and the bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.
“The fundamental story about the global tightening is still there … The sell-off was definitely overdone,” he added.
Meanwhile, former Russian President Dmitry Medvedev warned that Japan’s reported proposal to cap the price of Russian oil to about half its current level would lead to significantly less oil on the market and push prices above $300-$400 a barrel.
Meanwhile, Norway’s government stepped in on Tuesday to end an oil sector strike that has cut oil and gas production, a union leader and the labor ministry said, ending a stalemate that could have worsened Europe’s energy crisis. Read more
By Saturday, the strike would reduce daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, while 341,000 barrels of oil would be lost, according to employers Norwegian Oil and Gas (NOG). lobby said.
However, recession worries continue to weigh on markets. According to some early estimates, the world’s largest economy may have shrunk in the three months from April to June. This would be the second straight quarter of contraction, considered the definition of a technical recession. Read more
More G10 central banks raised interest rates in June than in any month in at least two decades, a Reuters tally showed. With inflation at multi-decade highs, the pace of policy tightening is not expected to ease in the second half of 2022. read more
“Although crude still faces the problem of a supply shortage, the key factors that led to the sharp sell-off in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and a likely interest rate hike by the US Federal Reserve as pressures on commodity prices.
“Thus, today’s recovery could be a short-term correction for the bears, and oil prices are likely to remain under pressure for the near term.”
Renewed concerns about China’s COVID-19 lockdown could also limit oil price gains.
The world’s largest crude oil importer has been fighting COVID outbreaks across the country with mass testing and new restrictions. China has reported cases of the coronavirus in the cities of Shanghai, Beijing, the eastern provinces of Anhui and Jiangsu, and the northwestern city of Xi’an. Read more
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Reporting by Arathy Somasekhar in Houston, Emily Chow in Kuala Lumpur; Editing by Sam Holmes and Kenneth Maxwell
Our standards: The Thomson Reuters Trust Principles.
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