Oil ends higher on hopes for better Chinese demand

SINGAPORE Oil futures ended up slightly higher on Wednesday on hopes for better Chinese demand, while uncertainty over how a Western cap on Russian oil prices would play out kept markets on edge after a sharp fall the previous session.

Brent crude futures gained 13 cents, or 0.16 per cent, at 0416 GMT to $79.48 a barrel, after falling below $80 for the second time in 2022 during the previous trading session.

The U.S. crude futures bounced back earlier losses and were steady from the previous close at $74.25 a barrel.

It was the largest daily decline in prices since September, which has traded in a $62 range this year.

The country has had fewer new COVID 19 infections for two consecutive days, despite expectations of rising China demand.

Markets analyst Leon Li at CMC Markets said China has gradually eased COVID 19 restrictions, which may boost demand.

China's yuan gained ground against the U.S. dollar on Wednesday as investors shrugged off the weaker than expected export and import data and waited for a government announcement on more COVID 19 easing measures that could revive the battered economy.

There was sentiment support on the supply front due to the potential drawdown in U.S. crude stockpiles of around 6.4 million barrels, according to API figures.

There was a lot of volatility due to uncertainty about how the Russian oil price cap would play out on supply. Russia is considering three options, including banning oil sales to some countries and setting maximum discounts at which it would sell crude, to counter the price cap imposed by Western powers, the Vedomosti daily reported on Wednesday.

There's still tons of uncertainty in the markets today, according to Claudio Galimberti, senior vice-president at Rystad Energy, said that Russia's crude production drop may not be as much as earlier expectations.

A stronger dollar and cautious activity in Asian stock markets were responsible for the weakness.

Wall Street benchmarks fell on Tuesday due to uncertainty around Federal Reserve rate hikes and further talk of a looming recession.

Strong economic data and hawkish signals from other policymakers sparked those fears.

Oil prices have dropped by more than 1 per cent for three consecutive sessions, giving up most of their gains for the year.

Some optimism remained that buyers could come back if the market bottoms out of a contango price structure, where forward prices are higher than prompt prices.

Energy traders are not confident in buying dips, but they will if the current selloff sends U.S. crude prices close to the levels the Biden administration might refill the SPR, which is in the $70 region, according to senior market analyst at OANDA Edward Moya.