Oil recoups early losses and becomes positive, despite fears of recession

Oil recovered early losses and traded higher on Tuesday despite worries about a possible recession and China's Covid-19 restrictions.

 

Investment banks including UBS and Goldman Sachs have lowered their 2022 China growth forecasts. Meanwhile, the head of the International Monetary Fund said she does not expect a recession in major economies, but cannot rule it out.

 

"Declining China's GDP growth forecasts and growing concerns over the expansion of virus restrictions in Beijing have pushed oil prices lower," said Geoffrey Halley, an analyst at brokerage OANDA.

 

Brent crude rose 0.3% to $113.79. US West Texas Intermediate (WTI) added 34 cents to trade at $110.63.

 

"Global economic growth is rapidly declining under the collective pressure of rising interest rates, the Covid outbreaks in China and the war in Europe," said Tamas Varga of oil broker PVM.

 

Beijing is ramping up lockdown efforts to end a month-long outbreak, while Shanghai's long-term ban will be lifted in just over a week.

 

Oil prices have risen sharply this year, with Brent reaching $139 a barrel in March, the highest since 2008, after Russia's invasion of Ukraine exacerbated supply concerns.

 

Despite concerns about threats to the global economy - The main theme of this week's Davos meeting — limited supply caused prices to fall.

 

In a move that analysts say will further tighten the market, the European Union has moved closer to agreeing on a ban on Russian oil imports. Such an embargo is likely to be agreed "within a few days," the German economy minister said on Monday.

 

Another source of support is US gasoline demand. This Memorial Day weekend marks the traditional start of the summer driving season in the US, when gas demand is usually at its peak.

 

Analysts expect U.S. gasoline and crude inventories to decline in the latest weekly reports, the first of which will be released by the American Petroleum Institute at 20:30 GMT.