Oil prices improved on Thursday amid a falling dollar and as investors bought the dip after two consecutive steep declines, although concerns over a sluggish economy curbed gains.
Global benchmark Brent crude futures rose 0.7% to $78.39 per barrel, while US oil benchmark West Texas Intermediate crude futures climbed 0.8% to $73.44 per barrel.
Following a significant sell-off since the beginning of the week, market strategist Jun Rong Yeap said oil prices appeared to be trying to tap into the weaker greenback for some stability.
A stumbling dollar drives oil prices higher as it strengthens demand as dollar-denominated commodities become cheaper for holders of other currencies.
Brent’s and WTI’s combined loss of over 9% on Tuesday and Wednesday was the biggest two-day losses at the start of a year since 1991.
Presenting a bearish signal for the near term, the two benchmarks also returned to contango in Asia trade on Thursday, pointing to spot prices below those to be delivered months later.
US, China Economic Uncertainties Weigh on Oil Prices
Oil posted sharp losses in the last two sessions due to concerns over a possible global recession, which grew further as the US and China, the top two consumers of crude, presented unstable economic signs for the short term.
US manufacturing activity dropped for the second straight month in December, with the Institute for Supply Management (ISM) manufacturing purchasing managers’ index (PMI) sliding to 48.4 from 49.0 in November.
The reading was the weakest since May 2020 and reflected the current slowdown in economic activities, which may keep buyers away from the market.
Furthermore, a survey from the US Department of Labor (DOL) showed that the country’s labor market remained elevated in November, with job openings sliding by 54,000 to 10.46 million from 10.51 million in the previous month.
The data raised concerns about the Federal Reserve potentially using the tight labor market to maintain higher interest rates for an extended period.
Dimming outlook for oil prices as well was concerns over economic disruption as China, the world’s largest oil importer, continues to face growing cases of COVID-19.
The Chinese government has also increased their fuel export quotas by 46% for the first batch of 2023, which signaled lower demand in the country.
