Skip to content

Oil Prices Recover After Tumble in Early 2023

Oil prices rebounded on Thursday after experiencing steep declines in the first few days of the new year.

Oil Pumpjacks

This followed news that policymakers at the Federal Reserve unanimously support a slower pace of interest rate hikes in 2023, which is expected to ease pressure on economic activity.

Concerns about lagging demand for oil arose after the International Monetary Fund warned of the possibility of a recession in major economies this year and as COVID-19 cases continue to rise in China. Despite this, Brent oil futures rose 0.8% to $78.68 per barrel, and West Texas Intermediate crude futures rose 1.3% to $73.75 per barrel, recovering from a three-week low reached on Wednesday.

U.S. Inventories in Focus as Oil Prices Rebound

Investors are turning to weekly inventory data to gauge the strength of oil consumption at the end of 2023. The American Petroleum Institute reported on Wednesday that U.S. crude inventories increased by 3.3 million barrels in the final week of December. However, this increase has been driven by continued releases from the Strategic Petroleum Reserve, indicating that underlying fuel consumption remained strong during the holiday season.

Analysts forecast that official data due later on Thursday will show a 1.2 million build in inventories. However, gasoline inventories – a key indicator of consumer demand – are expected to have decreased.

While rising COVID-19 cases in China could delay an economic reopening and continue to pressure business activity, data released this week showed that the pace of contraction in the country slowed in December, suggesting that the withdrawal of anti-COVID measures is facilitating some recovery in economic activity. However, analysts warn that rising infections in China could lead to high volatility in the coming months.