Oil prices recover on signs of tighter supply, Fed fears limit gains

By Ambar Warrick

Investing.com -- Oil prices recovered a measure of recent losses on Wednesday on the prospect of tightening U.S. supplies, although fears of rising interest rates, following hawkish signals from the Federal Reserve, still weighed on sentiment.

Data from the American Petroleum Institute showed that U.S. crude inventories likely saw their first decline last week after 10 straight weeks of builds, heralding a similar trend from government data due later in the day.

Signs of a draw in inventories, coupled with recent comments from oil firm executives that U.S. production had peaked, helped spur some bets that supply in the world’s largest oil consumer will tighten in the coming months.

Brent oil futures rose 0.6% to $83.42 a barrel, while West Texas Intermediate crude futures steadied around $77.57 a barrel by 20:35 ET (01:35 GMT). Both contracts plummeted between 3.5% and 4% on Tuesday.

Crude prices were still nursing their worst losses in over two months after Fed Chair Jerome Powell warned that recent strength in inflation and the jobs market was likely to see interest rates rise more than market expectations.

His comments ramped up concerns that rising interest rates could spur a potential recession this year, which in turn will dent crude demand. The dollar also strengthened sharply after Powell’s testimony, further weighing on oil markets.

Tuesday's losses also saw oil prices turn negative for the year, after a series of positive weeks saw markets briefly break into positive territory.

Focus this week is squarely on data providing more cues on the U.S. economy, starting with the Fed’s Beige Book due later on Wednesday. Nonfarm payrolls data, due on Friday, is also closely awaited, given that any signs of strength in the jobs market give the Fed more headroom to raise interest rates.

Fears of rising rates and slowing economic growth have been the biggest weights on crude prices this year, largely offsetting optimism over a potential recovery in Chinese demand.

But mixed economic readings from the country undermined bets on a Chinese recovery this week.

While the country logged a record-high trade surplus in the January-February period, it also saw a bigger-than-expected decline in imports, indicating that Chinese demand remained weak despite the lifting of anti-COVID restrictions.

Focus is now on Chinese inflation data for February, due on Friday, for more economic cues on the world’s largest oil importer.