Oil advances after three-day plunge, but demand fears linger

Oil prices recovered slightly on Thursday but were unable to claw back the more than 9% decline in the previous three days as demand concerns in major consumers overrode signals that the US may pause its interest rates increases.

Brent futures had risen 17c, or 0.2%, to $72.50 a barrel by 2.57am GMT (4.57am). Since Friday Brent has dropped more than 9% and earlier on Thursday fell to as low as $71.28.

US West Texas Intermediate (WTI) crude rose 2c, to $68.62 a barrel. WTI dropped almost 11% from Friday to Wednesday’s close and earlier on Thursday fell to as low as $63.64.

Prices have plunged this week amid signs of weak manufacturing growth in China, the world’s largest oil importer, and after the US, the world’s biggest oil user, raised interest rates to their highest since 2007 on Wednesday, threatening economic growth there.

Still, with some positive growth in the US services sector and expectations that output cuts by major producers that started this month will limit supply, investors and analysts are buying back into the market.

“Oil is starting to find some support as all the bad supply and demand news has been priced in,” said Edward Moya, an analyst at Oanda.

While the Fed raised interest rates a quarter of a percentage point as expected, it signalled it may pause further increases to give officials time to assess the fallout from recent bank failures and wait for clarity about the dispute over raising the US debt ceiling.

The collapse of the third US bank since March, spurred by their inability to manage rising interest rates, has also weighed overall on financial markets.

Opec+ started voluntary output cuts of about 1.16-million barrels per day at the beginning of this month and those are expected to support the market in the summer peak demand period.

“It seems like Opec+ will have pressure to finally show they can meet those production cut quotas and possibly be in a position to signal more cuts are coming,” Moya said.

Investors are also awaiting developments from the European Central Bank, which is set to raise interest rates for the seventh consecutive meeting on Thursday.

Chinese demand concerns continue to weigh on the market especially after a private sector survey showed on Thursday that factory activity unexpectedly dipped in April due to softer domestic demand.

Reuters