Oil rebounds but economic outlook caps gains

Oil rebounded on Thursday after the previous day’s plunge, as data showed a jump in refinery runs at the world’s top crude importer China, though a weak economic backdrop capped gains.

Brent crude futures rose 39 cents, or 0.6 per cent, to $73.59 a barrel by 0630 GMT. US West Texas Intermediate (WTI) crude climbed 39 cents, or 0.6 per cent, at $68.66 a barrel.

Both benchmarks fell 1.5 per cent on Wednesday after the US Federal Reserve projected the need for more rate hikes this year, triggering fears that a higher interest rate environment would slow the economy and lower oil demand.

China’s oil refinery throughput in May rose 15.4 per cent from a year earlier, data showed on Thursday, hitting its second highest total on record.

The higher throughput came as refiners brought units back online from planned maintenance and independent refiners processed cheap imports.

But a weak economic outlook capped price gains on Thursday, as China’s industrial output and retail sales growth in May missed forecasts.

China’s industrial output grew 3.5 per cent in May, down from an expansion of 5.6 per cent in April and slightly below a 3.6 per cent increase expected by analysts in a Reuters poll, as manufacturers struggled with weak demand at home and offshore.

The country’s retail sales, a key gauge of consumer confidence, rose 12.7 per cent, missing forecasts of 13.6 per cent growth and slowing from April’s 18.4 per cent.

The sombre Chinese data weighed on oil prices, said Priyanka Sachdeva, a market analyst at Phillip Nova.

“China’s post-COVID recovery has been bumpy and the mellowed first quarter economic standing has completely swept away any forecast of China’s revival pushing the global demand for oil to record highs,” Sachdeva said.

Looming US interest rate hikes also raised investor concerns.

A high-for-longer rate outlook may lead to further growth pressures and keep oil demand conditions in check, said Yeap Jun Rong, a market strategist at IG.

“Until market participants are convinced that the worst is over in terms of (the) economic outlook, which has not been receiving much validation, oil prices could remain low for longer,” Yeap said.

Adding to market jitters about weaker fuel demand, the European Central Bank is all but certain to raise borrowing costs to their highest level in 22 years on Thursday and leave the door open to more hikes.

The Bank of England is also not yet done with rate rises as it battles inflation, a Reuters poll of economists found.