Oil rises but recession fears limit gains

Oil prices surged on Monday on optimistic expectations and hopes for China’s economy after news speaking about relaxing COVID-19 restrictions. But, fears of a global recession would weigh on energy demand and therefore oil’s gains are limited.

China is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed restrictions but officials said there are plans to step up support for the economy in 2023. There is no doubt that demand is being adversely influenced. However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth.

Brent crude gained 76 cents to settle at $79.80 a barrel, while US West Texas Intermediate crude rose 90 cents to $75.85 versus the previous closing price $74.46. Prices pared gains earlier before rising again in a volatile session.

Markets still have fears of a big recession looming on the horizon that has not gone away. It is going to be difficult to make big gains under such circumstances.

Oil surged toward its record high of $147 a barrel earlier in 2022 after Russia invaded Ukraine in February. It has since relaxed most of this year’s gains as supply concerns were edged out by recession fears.

European Union energy ministers on Monday agreed to a gas price cap, after weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

The cap can be triggered starting from February 15, 2023, the document detailing the final deal showed. The deal will be formally approved by countries in writing, after which it can enter into force.

The prospect of further rate rises will hit economic growth in the new year and in doing so curb demand for oil

Oil was supported by the U.S. Energy Department saying on Friday that it will begin repurchasing crude for the Strategic Petroleum Reserve – the first purchases since releasing a record 180 million barrels from the reserve this year.