Oil prices rebounded on Thursday amid dollar weakness and as investors emerged to buy dips after two sessions of steep losses, though economic concerns capped recovery.
Brent crude futures had climbed 75 cents, or 1.0%, to $78.59 a barrel by 0400 GMT, while U.S. West Texas Intermediate crude futures rose 77 cents, or 1.1%, to $73.61 a barrel.
Big declines in the previous two days were driven by worries about a potential global recession, especially since short-term economic signs in the world’s two biggest oil consumers, the United States and China, appeared shaky.
“Coming after the heavy sell-off since the start of the week, it seems that oil prices are attempting to tap on some weakness in the U.S. dollar this morning for some reprieve,” said Jun Rong Yeap, market strategist at IG.
“The second month of contraction in US manufacturing PMI continues to reflect ongoing slowdown in economic activities, which may leave buyers shunning” the market, he added.
Brent’s and WTI’s cumulative declines of more than 9% on Tuesday and Wednesday were the biggest two-day losses at the start of a year since 1991, according to Refinitiv Eikon data.
Reflecting near-term bearishness, the benchmark oil contracts slipped back into contango in Asia trade on Thursday, meaning spot prices were lower than those for delivery months later.
Economic data from the United States weighed on prices as U.S. manufacturing contracted further in December. The ISM purchasing managers’ index (PMI) for manufacturing dropped for a second straight month in November, to 48.4 from 49.0. It was the weakest reading since May 2020, the Institute for Supply Management (ISM) said.
At the same time, a survey from the U.S. Labor Department showed job openings had fallen less than expected, raising concerns that the Federal Reserve would use the tight labor market as a reason to keep interest rates higher for longer.
Concerns about economic disruption as COVID-19 works its way through China, the world’s biggest oil importer, have added to the pessimism around crude prices.
The Chinese government increased export quotas for refined oil products in the first batch for 2023, signaling expectations of poor domestic demand.
Meanwhile, dollar weakness helped support oil prices, since it typically boosts demand as dollar-denominated commodities become cheaper for holders of other currencies.