Oil prices held steady in early trade on Wednesday after rebounding on Tuesday on easing restrictions in China and a slowdown in US inflation, paving the way for a softer Federal Reserve rate hike this week.
After rising 3.4 percent to $80.68 on Tuesday, Brent, the benchmark for two-thirds of the world’s oil, was down 0.24 percent at $80.49 at 8:14 UAE time.
West Texas Intermediate, the indicator for US crude oil, was also up 3.0 percent to settle at $75.39 on Tuesday. On Wednesday, it fell marginally, down 0.19 percent to $75.25 a barrel.
Stock markets and oil prices rebounded on Tuesday after the US consumer price index cooled to 7.1 percent in November, from 7.7 percent in October after rising to a pandemic high of 9.1 percent last June.
The deceleration in consumer price growth was less than the consensus forecast of 7.3 percent, marking the slowest price growth since December 2021 and signaling the possibility that inflation in the world’s largest economy may have peaked after significant rate hikes.
The Fed is expected to hike rates for the seventh time on Wednesday. The central bank is expected to hike rates by half a percentage point after four consecutive hikes of 75 basis points.
Separately, OPEC on Tuesday stuck to its oil demand growth forecast for this year and 2023.
The oil producer group now expects the global economy to grow 2.8 percent this year, up from its previous estimate of 2.7 percent growth.
The forecast for global economic growth in 2023 was left unchanged at 2.5 percent.
“The risks to global economic growth remain due to challenges such as high inflation, monetary tightening by major central banks, [and] high national debt in many regions,” said OPEC.
“In addition, geopolitical risks and the pace of the Covid-19 pandemic remain uncertain in the winter.”
China, the world’s second-biggest economy and biggest crude oil importer, is facing a surge in Covid cases after the country eased its zero-tolerance measures for the first time in three years.
Brent lost more than 10 percent of its value last week on fears of a global recession.
Oil demand was “adjusted higher” in the third quarter on the back of “better-than-expected” fuel consumption in Organization for Economic Co-operation and Development (OECD) countries, Opec said.
This was offset by a slowdown in non-OECD countries and “sluggish” industrial activity in China, the group added.
Crude oil prices, however, are up about 3 percent this week on optimism about a recovery in Chinese demand.
“Crude prices are rising on hopes that China’s demand situation will improve quickly and concerns that supplies are being held tight by both Russia and OPEC,” said Edward Moya, senior market analyst at Oanda.
“China’s reopening is imminent, it won’t happen overnight, but it will give a big boost to demand in the next quarter.”
OPEC+, the alliance of 23 oil-producing countries, aims to reduce market volatility and will continue to focus on stability in the coming year, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told a forum in Riyadh on Sunday.
The alliance’s decision to cut production by 2 million barrels a day on Oct. 5 has proved correct given recent developments, he said.
Earlier this month, amid uncertainty over EU sanctions on Russian crude, OPEC+ decided to stick to its existing oil production targets.
But the group said it was ready to address “market developments” and support the “oil market balance and its stability if necessary”.
According to the Institute of International Finance, global economic growth is expected to be as weak as it was in 2009 – during the global financial crisis – due to the Ukraine conflict and its impact on the global economy.
According to IIF estimates, the global economy is expected to grow by 1.5 percent next year, compared to 0.6 percent in 2009.
This assessment follows the International Monetary Fund’s move to cut its global economic growth forecast for next year due to the impact of the Ukraine conflict, mounting inflationary pressures and a slowdown in China.
The fund kept its global economic estimate for this year at 3.2 percent but lowered the forecast for next year to 2.7 percent – 0.2 percentage points lower than the July forecast.
Updated December 14, 2022 5:06 am