Oil Edges Higher After Two-Day Slump on Sour Demand Outlook

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(Bloomberg) — Oil rose after tumbling around 9% over the first two sessions of the year on concerns about the demand outlook in the US and China.

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West Texas Intermediate futures climbed above $73 a barrel after capping the biggest two-day loss since March. The Federal Reserve affirmed its resolve to bring down inflation, with many officials highlighting the need to tighten policy without slowing the economy too much, minutes of its December meeting show.

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The gloomy start to the year has been exacerbated by thin liquidity, which has left oil futures prone to wild price swings. A surge in Covid-19 cases in China has clouded the near-term demand outlook, overshadowing optimism that commodity consumption in the biggest importer will eventually rebound.

See also: China Commodity Bulls See Big Gains After Near-Term Covid Pain

“Warning signs of global recession, China’s lackluster recovery with surging Covid-19 cases, and dampened risk sentiment are all catalysts keeping oil prices in check,” said Jun Rong Yeap, a market strategist for IG Asia Pte.

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Oil spreads are also signaling ample near-term supply. The gap between the prompt and second-month contracts for WTI and global benchmark Brent are both in a bearish contango structure. That’s despite Russian crude flows being curbed by sanctions following its war in Ukraine.

The industry-funded American Petroleum Institute reported US commercial crude stockpiles expanded by 3.3 million barrels last week, according to people familiar with the figures. Gasoline inventories also increased but supplies of distillates — a category that includes diesel — shrank.

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