Oil stabilized as recession fears counteracted positive Chinese signals

HOUSTON (Reuters) – Oil prices were flat on Monday in choppy trade as concerns that rising inflation and energy costs could drag the global economy into recession, offsetting China’s continued loose monetary policy.

Brent crude futures fell one cent, or 0.01%, to $91.62 a barrel, recovering from a 6.4% drop last week. US West Texas Intermediate crude was down 15 cents, or 0.2%, at $85.46 after falling 7.6% last week.

“US inflation remains a major topic, and with the Fed poised to raise interest rates at least next year, there are concerns that demand destruction will escalate,” said Dennis Kessler, senior vice president of trading at BOK Financial.

China’s central bank rolled due medium-term monetary policy loans on Monday while keeping the key interest rate unchanged for the second month, a sign of continued loose monetary policy.

A senior official with the National Energy Administration said Monday that Beijing will significantly increase domestic energy supply capacity and strengthen risk controls in commodities including coal, oil, gas and electricity.

Another government official said at a press conference in Beijing that China will increase its reserve capacity for major commodities.

China’s trade and third-quarter GDP data, along with September activity data, are due Tuesday, with quarterly growth likely to rebound from the previous quarter, but annual growth threatens to be China’s worst in nearly half a century.

Meanwhile, a strong US dollar and the possibility of an interest rate hike by the Federal Reserve are helping to contain price gains.

Louis Federal Reserve Bank President James Bullard said Friday that inflation has become “malignant” and difficult to stop, calling for continued “frontloading” through larger rate increases of three-quarters of a percentage point.

International Monetary Fund official Gita Gopinath said on Monday that US inflation remains stubborn and growth in EU countries is expected to weaken to 0.5%.

“It’s been another turbulent few weeks in the oil markets from global growth concerns to massive OPEC+ production cuts that seem to have not fully stabilized yet,” said Craig Erlam, chief markets analyst at OANDA.

“Brent has seen lows at $82 and highs at $98, so maybe what we see now is that it is finding its feet somewhere in the middle.”

Oil supplies are likely to remain tight after OPEC and its allies including Russia pledged on Oct. 5 to cut production by 2 million barrels per day, while the war of words between Saudi Arabia and the United States, the de facto leader of the Organization of the Petroleum Exporting Countries, may portend more volatility.

The OPEC+ production cuts attracted money to the oil markets, with heavy buying of crude oil futures and options continuing for the second week in a row.

To ease the supply crunch, oil production in the Permian in Texas and New Mexico, the largest US shale oil basin, is set to rise by about 50,000 barrels per day to a record 5.453 million barrels per day in November, according to the US Energy Information Administration. (EIA) said in its productivity report on Monday.

Additional reporting by Noah Browning in London, Mohi Narayan in New Delhi and Florence Tan in Singapore. Editing by Susan Fenton, Kirsten Donovan, David Goodman, Ed Osmond, Paul Simao, and David Gregorio

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