Oil steadies as market eyes China recovery and EU embargo

[February 03, 2023]  By Ahmad Ghaddar

LONDON (Reuters) -Oil prices steadied on Friday but were on track for a second week of losses as the market awaited further signs of fuel demand recovery in China and the impact of an EU embargo and price cap on Russian oil products.

Brent crude futures fell 18 cents, or 0.2%, to $81.99 a barrel by 1043 GMT, having dropped by about 1% in the previous session. U.S. West Texas Intermediate (WTI) crude futures slipped by 14 cents, or 0.2%, to $75.74.

Brent is poised to register a more than 5% decline this week while WTI is on course for a 4% drop.

"Oil prices are likely to tread water until it becomes clear how dynamically Chinese demand will recover or what the consequences of the EU embargo and price caps will be," Commerzbank said.

ANZ analysts pointed to a sharp jump in traffic in China's 15 largest cities after the Lunar New Year holiday but also noted that Chinese traders had been "relatively absent".

A slightly stronger dollar ahead of U.S. job data kept a lid on gains. A stronger U.S. currency can curb oil demand because it usually makes the dollar-priced commodity more expensive for those holding other currencies.

U.S. job growth in January is likely to have remained strong thanks to a resilient labour market, but expectations of a continued slowdown in wage gains offer the Federal Reserve some comfort in its fight against inflation, a Reuters survey showed.

The Imperial Strathcona Refinery which produces petrochemicals is seen near Edmonton, Alberta, Canada, October 7, 2021. REUTERS/Todd Korol/File Photo

The U.S. central bank scaled back to a milder rate increase than those over the past year, but policymakers also projected that "ongoing increases" in borrowing costs would be needed.

Increases to interest rates in 2023 are likely to weigh on the U.S. and European economies, boosting fears of an economic slowdown that is highly likely to dent global crude oil demand, said Priyanka Sachdeva, market analyst at Phillip Nova.

Investors are also eyeing developments on the Feb. 5 European Union ban on Russian refined products, with EU countries seeking a deal on Friday to set price caps for Russian oil products.

The Kremlin on Friday said that the EU embargo on Russia's refined oil products would lead to further imbalance global energy markets.

(Reporting by Ahmad GhaddarAdditional reporting by Sonali Paul in Melbourne and Jeslyn Lerh in SingaporeEditing by David Goodman)

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