Oil swings as tight crude market competes with economy fears

Oil fluctuated as concerns about weakness in the global economy jostled with signs of tight physical crude supply.

West Texas Intermediate reversed declines as the dollar wiped out an earlier gain, making commodities priced in the currency more attractive. Still, crude’s futures market is facing bearish economy and policy signals with the US Federal Reserve expected to approve another big interest-rate hike this week as it combats surging inflation. That would pile pressure on demand. German business confidence tanked, indicating it is on the brink of a recession. 

The fears are forcing some traders to look past signs of deep tightness in the availability of actual oil barrels. Global benchmark Brent’s nearest contract is more than US$5 higher than the next month, the most this month, indicating concerns over short-term supply. Some buyers in Asia have been paying premiums of more than US$20 a barrel to secure certain crude grades. 

“While prices have been volatile, I expect renewed downward pressure on crude,” said Vandana Hari, founder of Vanda Insights. The Fed meeting “will likely serve as a fresh reminder of the economic headwinds.”