Oil prices have been falling since Tuesday as supply concerns returned

Crude oil storage tanks are seen from above at the Cushing Oil Center in Cushing, Oklahoma on March 24, 2016. REUTERS/Nick Oxford/File Photo

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  • Oil rose nearly 3% before paring some gains
  • Rate hikes, recession fears still limit price gains – analyst
  • China reports new COVID cases nationwide

KUALA LUMPUR, July 6 (Reuters) – Oil prices rose nearly 3% on Wednesday before paring some gains as investors rallied back into the market after a sharp rout in the previous session, returning to the lead despite concerns over supply concerns. About the duration of the global recession.

Brent crude futures were up $3.08, or 2.9%, at $105.85 a barrel in early trade after falling 9.5% on Tuesday, the biggest daily drop since March. It was last up $1.63, or 1.6%, at $104.40 a barrel by 0650 GMT.

US West Texas Intermediate (WTI) crude oil rose to $102.14 a barrel, up $2.64, or 2.7%, to close below $100 for the first time since late April. It dipped briefly into negative territory amid a stronger U.S. dollar before recovering, last trading up $1.20, or 1.2%, at $100.70 a barrel.

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The dollar strengthened to a 20-year high against the euro and multi-month highs against other major peers as higher gas prices and political uncertainty renewed recession fears and sent investors to the safe-haven currency.

A strong greenback usually makes oil more expensive in other currencies, which can curb demand.

“Today is kind of a reset. There’s no doubt short covering and bargain hunters coming in,” said John Gilduff, partner at Again Capital LLC.

“The underlying story of global tightening is still there … the sell-off is definitely overdone,” he added.

Meanwhile, former Russian President Dmitry Medvedev warned that a plan to cap the price of Russian oil from Japan at half its current value would lead to significantly less oil on the market and push prices above $300-$400 a barrel.

On the other hand, the Norwegian government intervened on Tuesday to end a strike in the petroleum industry that has reduced oil and gas production, a union leader and the labor ministry said, ending a deadlock that could worsen Europe’s energy crisis. read more

By Saturday, the strike would have reduced daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, while 341,000 barrels of oil would have been lost, the Norwegian Oil and Gas (NOG) bosses’ lobby said.

However, concerns about a recession continue to weigh on markets. According to some early estimates, the world’s largest economy may have contracted in the three months from April to June. It would be the second straight quarter of contraction, considered the definition of a tech recession. read more

More G10 central banks raised interest rates in June than in any month for at least two decades, Reuters calculations show. With inflation at multi-decade highs, the pace of policy tightening is not expected to slow in the second half of 2022. read more

“Although crude still faces the problem of supply shortages, there are key factors that led to oil’s sharp sell-off yesterday,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and interest rate hikes by the US Federal Reserve as putting pressure on commodity prices.

“Therefore, today’s rebound may be a short-term correction for the bears and oil prices will remain under pressure for the foreseeable future.”

Renewed concerns of COVID-19 lockdowns across China could limit oil price gains.

The world’s largest crude oil importer is fighting COVID across the country with mass testing and new restrictions. Cases of the coronavirus have been reported in China’s Shanghai, Beijing, eastern Anhui and Jiangsu provinces, and the northwestern city of Xi’an. read more

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Reporting by Arathi Somesekhar in Houston, Emily Cho in Kuala Lumpur; Editing by Sam Holmes and Kenneth Maxwell

Our Standards: Thomson Reuters Trust Principles.

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