Oil Rebounds After Two-Day Drop as Traders Assess Products and China, According to Bloomberg

Oil prices have experienced a rebound due to strong activity in product markets after a two-day decline, which was primarily fueled by concerns over a potential global economic slowdown.

West Texas Intermediate crude oil recovered from early losses, trading above $110 per barrel, after a 4% drop in the preceding sessions. Investor sentiment has shifted away from equities and numerous commodities following statements from Federal Reserve officials indicating that stricter monetary policy is on the horizon to address an overheating economy and rising inflation.

The future outlook for crude oil remains uncertain as China grapples with a surge in Covid-19 infections. Although the city of Shanghai is beginning to exit a severe lockdown, new cases have emerged in other cities, particularly disrupting activities in Beijing, a significant concern since China is the world’s largest oil importer.

Since late February, the global oil market has experienced significant volatility due to the impact of Russia’s invasion of Ukraine on energy supplies. Despite recent price weaknesses, oil remains over 40% more expensive this year, supported by robust demand in product markets, decreasing inventories, and record gasoline prices. Recent U.S. data suggests a generally optimistic outlook for crude as the driving season approaches.

Analyst Gui Chenxi from CITIC Futures Co. noted, “Oil as a financial asset is facing challenges, with concerns about an economic slowdown and inflation leading to potential downside risks.” However, she pointed out that low inventories in the U.S. are providing some degree of support for prices.

Oil markets are still showing signs of backwardation, where shorter-term prices exceed those of longer-term contracts—a bullish sign for the market. The prompt spread for Brent crude, reflecting the difference between its two nearest contracts, has widened to $2.13 per barrel in backwardation, up from $1.46 a week ago.

In response to the invasion, the U.S. and U.K. have implemented bans on Russian crude imports to penalize and isolate Moscow. The European Union is also aiming to establish a similar embargo but is facing resistance from Hungary.