FILE PHOTO: Pump jacks operate in front of a drilling rig in an oil field in Midland
SINGAPORE: Oil futures edged slightly higher on Wednesday on hopes for improved Chinese demand while uncertainty about how a Western cap on Russian oil prices would play out kept markets on edge after a sharp fall the previous session.
Brent crude futures gained 13 cents, or 0.16%, at 0416 GMT to $79.48 a barrel, after they fell below $80 for the second time in 2022 during the previous trading session.
U.S. crude futures clawed back earlier losses and were steady from the previous close at $74.25 a barrel.
Brent's slump on Tuesday was the largest daily decline in prices since late September, which have traded in a $62 range this year.
Expectations of rising China demand continued to be a positive driver, as the country posted fewer new COVID-19 infections for two consecutive days.
"China has (been) rapidly eased COVID-19 restrictions, which may boost demand," markets analyst Leon Li at CMC Markets said in a note.
China's yuan also firmed against the U.S. dollar on Wednesday as investors shrugged off much weaker-than-expected export and import data and awaited a government announcement on more COVID-19 easing measures that could revive the battered economy.
A potential drawdown in U.S. crude stockpiles of around 6.4 million barrels, according to API figures, also gave some sentiment support on the supply front.
However, uncertainty on how the price cap on Russian oil would play out on supply contributed to volatility. Russia is considering three options, including banning oil sales to some countries and setting maximum discounts at which it would sell its crude, to counter the price cap imposed by Western powers, the Vedomosti daily reported on Wednesday.
"There's still tons of uncertainty in the markets today," said Claudio Galimberti, senior vice-president at Rystad Energy, adding the crude production drop in Russia may not be to the same extent as earlier expectations.
Some weakness was attributed to a stronger greenback and cautious activity in Asian stock markets.
Wall Street benchmarks also tumbled on Tuesday on uncertainty around the direction of Federal Reserve rate hikes and further talk of a looming recession.
Those fears were sparked by strong economic data or hawkish signals from other policymakers.
Oil prices have dropped by more than 1% for three straight sessions, giving up most of their gains for the year.
Some optimism remained that buyers could come back if the market bottoms out amid a contango price structure, where forward prices are higher than prompt prices.
"Energy traders are not confidently buying dips, but they will if the current selloff sends (U.S. crude) prices close to the levels the Biden administration might refill the SPR, which is in the $70 region," senior market analyst at OANDA Edward Moya said in a client note, referring to the U.S. Strategic Petroleum Reserve. (Reporting by Laura Sanicola in New York and Trixie Yap in Singapore; Editing by Cynthia Osterman and Lincoln Feast.)
