Oil edges higher as recession fears drag down hopes for China’s economy

NEW YORK: Oil prices edged higher on Monday, as fears of a global recession limited gains from optimism that China is relaxing its COVID-19 restrictions.

China, the world’s top crude oil importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.

“There is no doubt that demand is being adversely influenced,” said Naeem Aslam, analyst at brokerage Avatrade.

“However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth.” Brent crude gained 23 cents to $79.27 a barrel by 11:13 a.m. EST (1613 GMT) while US West Texas Intermediate crude rose 23 cents to $74.52.

Prices pared gains, after earlier rising over $1 per barrel.

“The reality here is that we still have a fear of a great recession looming on the horizon that has not gone away,” said Bob Yawger, director of energy futures at Mizuho. “It’s going to be difficult to make big gains here.” Oil surged towards its record high of $147 a barrel earlier in the year after Russia invaded Ukraine in February. It has since unwound most of this year’s gains as supply concerns were edged out by recession fears.

European Union nations’ energy ministers have agreed a gas price cap, a spokesperson for the Czech Republic said on Twitter on Monday. The deal follows weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

The US Federal Reserve and European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, could shift its ultra-dovish stance when it meets on Monday and Tuesday.

“The prospect of further rate rises will hit economic growth in the new year and in doing so curb demand for oil,” said Stephen Brennock of oil broker PVM.

Oil was supported by the US Energy Department saying on Friday that it will begin repurchasing crude for the Strategic Petroleum Reserve - the first purchases since releasing a record 180 million barrels from the reserve this year.