Crude oil prices rose slightly in Asian trade on Tuesday amid hopes of recovery in fuel demand from the largest importer China, as concerns about a slowdown in the US economy capped gains.
Brent crude fell 5 cents to $88.14 a barrel at 0436 GMT after hitting session highs of $88.36. West Texas Intermediate (WTI) crude rose 2 cents to $81.64 a barrel after hitting $81.88 earlier in the session.
Commodities such as crude oil, refined petroleum products, LNG and soybeans are poised to benefit from China’s demand headwind, analysts say.
Crude oil prices in physical markets started the year higher as China, no longer blocked by pandemic controls, shows signs of further purchases and fears that sanctions against Russia could reduce supply.
Also, the dollar, which is at a multi-month low, supports oil prices. As traders continue to gauge US recession risks and the course of Federal Reserve policy, the dollar is hovering near a nine-month low against the euro and has reversed recent gains against the yen.
A weaker dollar makes dollar-denominated commodities, including oil, cheaper for buyers using other currencies.
Investor expectations for the US to enter a recession have decreased significantly compared to last year. While there is hope in the US that the economy can pick up against all odds, some energy traders are still skeptical about how quickly China’s crude oil demand will recover this quarter.
Demand for petroleum products has boosted the oil market and refinery margins. 3-2-1 crack spread, a proxy for refining margins, hit $42.18 a barrel on Monday, reaching its highest level since October.
Investors turned to oil futures and options at the highest rate in more than two years as concerns about a downturn in a global business cycle waned, although the flash PMI data released on Tuesday is expected to show a contraction.
This week, traders are watching for more business data that could point to the health of global economies in an earnings reporting season.
On the inventory side, U.S. crude oil and gasoline inventories were expected to rise last week, while distillate stocks were lower, according to a preliminary survey on Monday.
The survey was conducted ahead of the American Petroleum Institute’s (API) report to be released at 2130 GMT, and the Energy Information Administration (EIA), the statistical arm of the US Department of Energy, will release its report at 1530 GMT on Wednesday.