
Oil Prices Stabilize as Recession Concerns Clash with Positive Demand Outlook, Reports Reuters
By Arathy Somasekhar
HOUSTON (Reuters) – Oil prices saw little change on Monday, closing slightly higher as concerns about a potential recession battled with expectations for increased fuel demand due to the approaching U.S. summer driving season and plans for Shanghai to reopen after a two-month lockdown due to COVID-19.
U.S. West Texas Intermediate (WTI) crude rose by 1 cent, or 0.01%, to settle at $110.29 a barrel, while futures gained 87 cents, or 0.7%, to close at $113.42.
“There are black clouds gathering around the financial markets here, and it has started to impact sentiment,” said Bob Yawger, director of energy futures at Mizuho. He added that the economic health of the global economy is uncertain at this time.
At the annual Davos economic summit, multiple threats to the global economy were highlighted, with some attendees expressing concerns about the possibility of a worldwide recession. International Monetary Fund Managing Director Kristalina Georgieva mentioned that while she does not anticipate a recession in major economies, it cannot be entirely ruled out.
Oil price declines were mitigated by strong expectations for gasoline demand. The U.S. is approaching its peak driving season, starting with Memorial Day weekend later this week. Despite worries that rising fuel prices may affect demand, data from TomTom and Google indicate that mobility has increased in recent weeks, with more drivers on the road in the U.S.
To address ongoing supply issues and curb rising prices, the White House is contemplating an emergency declaration to release diesel from a rarely utilized stockpile. This reserve, known as the Northeast Home Reserve, was established in 2000 to help with supply disruptions and has been tapped only once, in the aftermath of Hurricane Sandy in 2012. However, any impact from such a release would likely be limited due to the reserve’s small size, which contains just 1 million barrels of diesel.
The European Union remains at an impasse over a proposed ban on Russian oil following the country’s invasion of Ukraine, which Russia terms a “special operation.” Hungary is still resisting the ban, preventing a sudden disruption in supply.
“The ongoing shortage of refined petroleum products in the U.S. and the continuing risks related to Ukraine and Russia are supporting prices,” noted Jeffrey Halley, a senior market analyst at OANDA.
In Shanghai, China’s commercial hub, plans to normalize activities are set to commence on June 1 as COVID-19 cases decline. The extensive lockdowns in China, the top global oil importer, have severely impacted industrial output and construction, leading to government measures to stimulate the economy, including a larger-than-expected cut in mortgage rates announced last Friday.
China’s cabinet has indicated that the government will implement targeted measures such as expanding tax credit rebates and launching new investment projects to bolster its economy, as reported by state television.