Oil prices drop on fears of US recession and rising inventory data
Oil prices slumped in early trade on Friday, but retain their weekly gain as the market oscillates between fears of recession hitting the US and hopes of robust fuel demand recovery in China, the world's largest oil importer.
Brent crude futures declined 35 cents, or 0.4%, at 0400 GMT to $84.15 a barrel, while West Texas Intermediate (WTI) crude futures slipped 41 cents, or 0.5%, to $77.65 a barrel.
The recession worry stemmed from a report on Thursday that showed the number of Americans claiming unemployment benefits rose more than expected last week and recession fears were reignited.
The sentiment looks toward the downside after the US unemployment data, but the demand recovery in China is promising for the second half of 2023.
China's January consumer price index (CPI) increased compared to December and inflation approached the government's target of around 3% last year, creating a cautious mood for the oil market.
The rise in China's CPI in January reflects the consumption demand of residents ahead of the Chinese New Year, but the data is not as good as expected and reflects the slower-than-anticipated recovery of the economy. Therefore, oil prices will continue to be volatile at this stage.
Looking at the latest US oil inventory data this week, the world's largest economy's slowdown has raised concerns as crude inventories hit the highest level since June 2021.
Still, Brent and WTI have risen more than 5% so far this week, easing concerns about further sharp rate hikes by the US Federal Reserve. This reversed most of the previous week's losses.
The market was buoyed by Saudi Arabia's move to raise official crude selling prices to Asia in March, which seemed to reflect the recovery in demand in China, where crude inflows were expected to increase.
Refineries are expected to increase their production rates, possibly from March, to meet domestic demand as well as export needs.
Analysts say US inflation data on February 14 will be the key factor for risk sentiment and dollar direction.
Meanwhile, As inflation declines across Europe and the U.S., risks remain elevated that central banks will need to still deliver more tightening than what markets are pricing in.
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