Oil prices are trading flat on Thursday after two consecutive days in decline as a strike in France, a drop in U.S. crude inventories, and a faltering dollar offset fears over the economic impact of rising interest rates.
In early trading, Brent Crude was sitting at $83.52, while WTI was trading at $77.40. Both benchmarks had dropped by around 5% this week.
The halt in deliveries from French refineries and slight weakness in the dollar might attract some short-covering, Tamas Varga of oil broker PVM told Reuters.
He added that any gains are likely to be capped by the prospect of higher interest rates.
Despite concerns over interest rate hikes impacting demand for oil, there has been support from expectations of rising Chinese demand. While China’s crude oil imports in the first two months of 2023 fell 1.3% year on year, analysts pointed to accelerating imports in February as a sign that fuel demand was rebounding after Beijing scrapped COVID-19 controls.
Oil had registered its largest daily fall since early January after Fed Chair Jerome Powell’s comments on Tuesday regarding the likelihood that interest rates will need to be raised more than previously expected in response to recent strong data continued to weigh on the market.
However, on the second day of his testimony on Wednesday, Powell struck a cautious note saying debate on the scale and path of future rate increases was ongoing and would depend on data, prompting a pause in the dollar’s rally.
A weaker dollar makes oil cheaper for buyers holding other currencies and tends to support risk appetite among investors.
Overall, we’re broadly seeing oil prices steady,” said Craig Erlam of brokerage OANDA. “As things stand, more rate hikes mean less chance of a soft landing and therefore lower crude demand.”