Oil edges higher after weekly loss as slowdown hangs over market

Oil clawed back some losses after a weekly slump as fears over an economic slowdown continue to weigh on the outlook for demand.

West Texas Intermediate futures traded above $86 a barrel after sliding almost 4 percent on Friday. In a speech Sunday opening the 20th Communist Party congress, Chinese President Xi Jinping signaled no change in direction for China’s strict Covid Zero policy, a strategy that has dragged on its economy this year.

“The upward momentum may not last as there’s no clear reason for a rally,” said Vandana Hari, the founder of Vanda Insights. “It could be some bargain hunting after a rapid slump toward the end of Friday’s session.”

An economic slowdown in China has added to a raft of bearish factors for oil, including aggressive monetary policy by central banks to try and tame inflation and a stronger US dollar. That’s overshadowed oil production cuts from the OPEC+ alliance that take effect from November.

The International Energy Agency last week warned that the output curbs could tip the global economy into recession, while the US criticized the cuts. White House National Security Adviser Jake Sullivan said options for re-evaluating US-Saudi relations include “changes to our approach to security assistance.” He spoke Sunday on CNN’s “State of the Union.”

The Biden administration had previously sought more oil from producers as it battles energy-driven inflation. Meanwhile, Federal Reserve Bank of St. Louis President James Bullard left open the possibility that the central bank may raise interest rates by 75 basis points at each of its next two meetings.

Widely watched crude time spreads are signaling a slight easing of a tight oil market. Brent’s prompt spread - the difference between its two nearest contracts - was $1.50 a barrel in backwardation on Monday, compared with $1.83 a week earlier.

Diesel markets are flashing signs of chaos, with shortages in Europe and America adding to a sagging supply outlook. Worker strikes over pay at French oil refineries have curtailed supply in the region, while the US is logging its lowest seasonal inventory levels on record. Signs of an end to the strike may allay concerns of further market tightness.