Oil: Returned from the ‘red’ with small profits

Oil prices broke a two-day negative session, offsetting their intra-conference losses and finally gaining ground in the wake of a new jump in US inflation and rising coronavirus cases in China that may affect demand, with authorities take new restrictive measures.

Specifically, the crude type West Texas Intermediate July delivery was up 26 cents, or 0.2%, at $ 120.93 a barrel, falling as low as $ 117.47.

Respectively, the type of oil Brent August delivery was up 26 cents, or 0.2 percent, at $ 122.27 a barrel on the ICE Futures Europe Index, hitting $ 118.93.

WTI and Brent reached their lowest intra-conference levels since June 7.

Concerns remain in the oil market that China will impose lockdowns on more cities due to the coronavirus outbreak, and the Fed’s assessment of more aggressive interest rate hikes due to persistently high inflation has contributed to intra-conference losses, as these two factors affect the demand for black gold.

Towards the end of the session, those concerns seemed to subside, and according to OANDA analyst Edward Moya, oil prices were boosted by the Energy Information Service signal that the oil market would remain tight in the short term.

Data from the EIA showed that spending on research and development in the oil and gas industry in 2021 was 28% lower than the five-year average of the previous five years 2015-2019.

Given this, “the appetite for risk is rapidly leaving Wall Street and one of the few trades that still looks attractive is oil,” Moya told MarketWatch. “You can say that the oil market is very tight, and even the news of a worsening pandemic in China is not squeezing oil prices.”

“If the Fed raises interest rates more aggressively in response to inflation and the US economy slides into recession, it will also affect oil demand,” said Carsten Fritsch, a commodity analyst at Commerzbank.

Meanwhile, the new rise of the dollar (+ 0.8%) was a counterweight to crude and other commodities priced in US currency.