By Peter Nurse
Investing.com -- Oil prices rebounded sharply Tuesday, with relaxing Chinese Covid restrictions easing demand concerns while OPEC warned about the difficulty in replacing Russian crude.
By 9:05 AM ET (1305 GMT), U.S. crude futures traded 3.8% higher at $97.83 a barrel, while the Brent contract rose 4% to $102.38 a barrel. Both benchmarks dropped around 4% on Monday, after recording last week their second consecutive losing week.
U.S. Gasoline RBOB Futures were up 2.2% at $3.0708 a gallon.
China's zero-tolerance approach to Covid-19 has raised concerns about a hit to demand from the world’s largest importer of crude, with its financial hub, Shanghai, fighting the country's worst outbreak since the virus first emerged in Wuhan in late 2019, locking down its entire population of 25 million.
OPEC cut its forecast for growth in world oil demand in 2022 in its monthly report earlier Tuesday, saying world demand would rise by 3.67 million barrels per day in 2022, down from 4.15 million barrels at its previous forecast.
However, news that the critically important Chinese region has begun easing movement curbs for some residents has buoyed the market.
The Organization of the Petroleum Exporting Countries warned that losses from Russian sources due to sanctions could be as much as seven million barrels per day, adding that the volume will be “impossible” to replace.
This follows a meeting between OPEC and European Union officials, with the EU currently discussing the potential for an oil embargo on Russia in the wake of its invasion of Ukraine and subsequent allegations of atrocities by Russian troops on Ukrainian civilians.
“An escalation could push the EU towards banning Russian oil, which would potentially see a significant tightening up in the market,” said analysts at ING, in a note. “There are unconfirmed reports about the use of chemical weapons in Mariupol. If confirmed, this would only put further pressure on the EU to target Russian oil imports.”
The gains have been slightly reduced following the release of the latest U.S. consumer price data, which surged 1.2% in March, the biggest monthly gain since September 2005.
This has largely cemented the case for a 50 basis points interest rate hike from the Federal Reserve next month, providing support for the dollar, to the detriment of commodity markets denominated in the U.S. currency.
Both crude benchmarks recorded their second consecutive lower week last week, pressured by the news that International Energy Agency member countries agreed to release 60 million barrels of crude from their emergency reserves, adding to the 180 million barrel release the U.S. announced in March.
OPEC will update its forecasts for global supply and demand in its monthly report, the U.S. will release its Short-Term Energy Outlook, while the American Petroleum Institute will report its weekly estimate for U.S. crude stocks.