Oil falls in choppy market as Fed and China recovery face off

Oil declined as investors weighed the prospect for further monetary tightening from the Federal Reserve against signs of improving demand from China following the end of Covid Zero.

Brent futures dropped toward $83 a barrel after closing 1.3% higher on Monday. The market has been choppy this year as investors weigh concerns that more interest rate hikes from the Fed will sap demand, while taking into account China’s reopening will drive an increase in commodity buying.

That’s left futures bouncing in a range of around $11 a barrel since the start of 2023 as the bullish and bearish narratives compete against each other. Some still expect Brent to eventually rise back above $100 on Chinese demand.

Goldman Sachs Group Inc. has once again reiterated its positive outlook for commodities this year, while oil traders continue to look for clearer signs of China’s sustained recovery. Russian exports to the Asian nation last month were at the highest level since the Ukraine invasion began.

The next key event that investors are watching is the minutes from the Fed’s last meeting, which will be released on Wednesday. That and personal spending data on Friday will help shape the debate over monetary policy.

“Any hawkish takeaway from the upcoming Fed minutes may be a catalyst for further downward pressure for oil,” said Yeap Jun Rong, a market strategist at IG Asia Pte Ltd. Prices have attempted to climb on the improving supply-and-demand outlook that’s coinciding with China’s recovery, he added.

Indian refiners have also ramped up processing, boosting rates in January to the highest level in five years on the back of rising domestic demand. The South Asian nation has also been a key consumer of Russian crude, taking advantage of discounted cargoes.

© 2023 Bloomberg