Oil prices pared gains on Thursday as signs of a strong economic rebound in top crude importer China were offset by a stronger dollar and fears over the impact of potential increases to European and U.S. interest rates.
Brent crude futures were unchanged at $84.31 a barrel by 12:38 p.m. EST (1738 GMT). U.S. West Texas Intermediate (WTI) crude futures gained 12 cents, or 0.2%, to $77.81.
Manufacturing activity in China grew last month at the fastest pace in more than a decade, data showed on Wednesday, adding to evidence of a rebound in the world’s second-largest economy after removal of strict COVID-19 curbs.
China’s seaborne imports of Russian oil are set to hit a record high this month as refiners take advantage of cheap prices.
However, the market was pressured by growing expectations of rate increases by the European Central Bank (ECB) after a faster than expected acceleration in consumer prices in France, Spain and Germany.
“Resurfacing inflation worries contributed to the souring mood,” said PVM Oil analyst Tamas Varga. “Persistent inflation anxiety will act as a break on a prolonged rally in the immediate future.”
Euro zone inflation rose in February to a higher than expected annual rate of 8.5%, according to a first estimate from the EU’s statistics agency.
ECB minutes on Thursday suggested the central bank may keep raising interest rates beyond the March meeting in two weeks, ING Economics said.
In the United States, a 10th consecutive week of crude stock builds (USOILC=ECI) also weighed on the market.
Record exports of U.S. crude, however, kept the build smaller than in recent weeks, the Energy Information Administration said.
Oil was also pressured by a strengthening dollar, after U.S. unemployment claims pointed to a strong jobs market. With other data showing growing labor costs, investors expect the Federal Reserve will keep interest rates higher for longer.
The number of Americans filing new claims for unemployment benefits fell again last week.
“(The) prospect of further U.S. rate hikes (is) likely to maintain U.S. dollar strength in providing a major upside limiter on oil pricing,” said Jim Ritterbusch of consultancy Ritterbusch and Associates.
Source: Reuters (Additional reporting by Rowena Edwards and Emily Chow in Singapore; Editing by Emelia Sithole-Matarise, David Gregorio and Susan Fenton)