Oil prices eased on Friday, with major benchmarks headed for their second straight week of losses, as the market awaited further signs of fuel demand recovery in China to offset looming slumps in other major economies.
Brent crude futures fell 34 cents, or 0.4%, to US$81.83 a barrel by 0740 GMT, while U.S. West Texas Intermediate (WTI) crude futures slid 37 cents, or 0.5%, to US$75.51.
Both contracts have dropped by more than 5% so far this week, with mixed signals on fuel demand recovery in China, the world’s top oil importer, keeping a lid on prices.
ANZ analysts pointed to a sharp jump in traffic in China’s 15 largest cities following the Lunar New Year holiday, but also noted that Chinese traders had been “relatively absent”.
The prospect of an economic rebound in China after COVID-19 curbs eased has buoyed the oil market so far this year, along with a weaker dollar that makes the commodity cheaper for those holding other currencies.
The dollar has fallen because aggressive interest rate hikes by the U.S. Federal Reserve are no longer expected. Central banks for other major economies, though, are continuing with bigger rate increases even as inflation has eased.
While supported by a weaker greenback, oil’s gains have been limited by the prospect of slow growth in the United States, the world’s biggest oil consumer, and recessions in places including Britain, Europe, Japan and Canada.
“The crude demand outlook needs a clear sign that China’s reopening will be smooth, and that the U.S. economic growth momentum does not deteriorate quickly,” OANDA analyst Edward Moya said in a note.
The U.S. central bank scaled back to a milder rate increase after a year of larger hikes, but policymakers also projected that “ongoing increases” in borrowing costs would be needed.
Upcoming interest rate hikes in 2023 are likely to weigh on the U.S. and European economies, boosting fears of an economic slowdown highly likely to dent global crude oil demand, said Priyanka Sachdeva, market analyst at Phillip Nova.
Investors are also eyeing developments on the 5 February European Union (EU) ban on Russian refined products as the EU countries will seek a deal on Friday to set price caps for Russian oil products.