Oil rebounds after two-day drop as traders weigh products, China

Oil rebounded amid strength in product markets following a two-day slump that was driven by concerns over a global economic downturn.

West Texas Intermediate erased early losses to trade above $110 a barrel after shedding 4 per cent over the previous two sessions. Investors have shunned equities and many commodities after Federal Reserve officials reaffirmed much tighter monetary policy lies ahead to cool an overheating economy and tame inflation.

Crude’s outlook has also been clouded as China struggles to contain a wave of Covid-19 infections. While the financial center of Shanghai has begun to emerge from a punishing lockdown, there have been fresh outbreaks in other cities and disruption in Beijing. The country is the world’s largest oil importer.

The global oil market has been gripped by volatile trading since late February, when Russia’s invasion of Ukraine roiled energy flows. Despite the recent weakness, prices remain more than 40 per cent higher this year amid strength in product markets, lower inventories, and record gasoline prices. US data this week painted a broadly positive picture for crude ahead of the driving season.

“Oil as a financial asset is facing headwinds, with an economic slowdown and inflation worries, pointing to the downside,” said Gui Chenxi, an analyst at CITIC Futures Co. Still, low US inventories are offering some support, she said.

Oil markets remain in backwardation, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread — the difference between its two nearest contracts — was $2.13 a barrel in backwardation, compared with $1.46 a week ago.

In the wake of the Russian assault, the US and UK moved to ban Russian crude imports to punish and isolate Moscow. The European Union is seeking to adopt a similar embargo for the bloc but has run into opposition from Hungary.