Oil prices fell after volatility in early trading on Tuesday as concerns over a possible recession will affect fuel demand and new COVID-19 restrictions in China outweighed shrinking global supplies.
West Texas Intermediate (WTI) crude fell 22 cents, or 0.2%, to $120.71 at 0353 GMT, while Brent crude futures fell 25 cents, or 0.2%, to $122.02 a barrel.
Discussions within the oil complex revolve around the decline in Libyan production, China’s continued implementation of countermeasures for the spread of COVID, and demand destruction caused by global recession concerns.
A COVID outbreak in Beijing, China has fueled fears of a new phase of quarantine just as restrictions are eased and fuel demand is expected to tighten. Chaoyang, the capital’s most populous district, launched a three-day mass testing campaign Monday involving nearly 3.5 million residents. The residences of the identified close contacts were quarantined.
Looking ahead, oil prices are likely to face further pressure if the US Federal Reserve surprises markets with a higher-than-expected rate hike.
On the supply side, global supplies have shrunk further as Russia is in the midst of a political crisis facing oil bans due to the war in Ukraine, and slumped production and exports from Libya.
The market will be waiting for weekly US inventory data from the American Petroleum Institute (API) on Tuesday and the US Energy Information Administration (EIA) on Wednesday for an insight into how crude oil and fuel supplies are doing.
Analysts estimate U.S. crude stockpiles fell 1.2 million barrels in the week through June 3, gasoline inventories increased by nearly 800,000 barrels, and distillate stocks, which include diesel and heating fuel, were unchanged.
