Oil prices rallied late Monday morning in Asian trading, reversing a weak start, as a rebound in Chinese demand and a weaker dollar supported a market reeling from the prospect of more US interest rate hikes.
After an initial drop, Brent Crude futures are up 19 cents, or 0.23%, to $82.97 a barrel at 04:10 GMT. West Texas Intermediate (WTI) crude oil futures are up 20 cents, or 0.26, at $76.88 a barrel.
Market sentiment was fragile as fears of further monetary tightening by the Fed were compounded by high US crude inventories, analysts at ANZ Bank noted in a note Monday morning.
“It’s as if the struggle against rising activity data in the East meets macroeconomic malaise in the West,” commented Stephen Innes, Managing Partner at SPI Asset Management, of the competing drivers of market sentiment.
“From an oil trader’s perspective, the US dollar weakens as investors pull back the Fed’s rate hike; this in turn paves the way for stronger Chinese fundamentals to dominate commodity trading,” added Innes.
A weaker dollar makes oil prices cheaper for holders of other currencies and supports oil prices.
The collapse of Silicon Valley Bank and Signature Bank of New York, along with fears of possible contagion, led to a sell-off in US assets late last week that also weighed on the dollar.
Saudi Aramco CEO Amin Nasser’s Sunday comments on Chinese oil demand also offered support.
“If you want to open up China and increase kerosene prices and very limited spare capacity, we’re talking about two million barrels, so like I said, we’re cautiously optimistic in the short to medium term and the market will remain tightly balanced,” he said he.
The comments follow news that Riyadh and Tehran have agreed to resume diplomatic ties under a China-brokered deal, potentially paving the way for a revived nuclear deal that would allow exports of currently-sanctioned Iranian oil.
A volatile start to the week for Oil prices follows positive momentum on Friday as US jobs data surprised on the upside. February’s data beat expectations with an increase of 311,000 nonfarm payrolls, according to a Reuters poll.
Looking ahead to medium- to long-term supply, energy services firm Baker Hughes Co said on Friday that U.S. energy companies this week reduced the number of operating oil and gas rigs for the fourth consecutive month for the first time since July 2020.