Oil Ekes Out Small Gains On Wild Speculation That Recession May Be Avoided

But one analyst warns of falling prompt spreads for WTI: File Image/Pixabay

After months of media fear mongering and analytical hand-wringing over inflation killing demand – a factor that heavily influenced oil trading in 2022 – all it took on Thursday for investors to cause a minor rally was wild speculation that the U.S. may be able to avoid a recession.

Earlier in the session negative sentiment prevailed with fears over China's reaction to rising Covid rates, but West Texas Intermediate ultimately added 64 cents to settle at $86.47 per barrel and Brent rose $1.02 to settle at $93.67 per barrel.

The Consumer Price Index, a key inflation barometer, jumped by 7.7 percent in October relative to a year earlier — the smallest 12-month increase since January (analysts were expecting a 7.9 percent annual increase).

Craig Erlam, senior market analyst at OANDA, said the CPI data showing tamer than expected inflation rates "could be the turning point investors have craved; there's still plenty of pain ahead but things suddenly look ever-so-slightly more positive."

However tenuous the relationship between the mildly positive figures and the trajectory of inflation may be, they caused investors to hope that the Federal Reserve would temper its interest rate hikes, which in turn could support oil demand.

Matt Smith, analyst at Kpler, added that Russia's withdrawal of troops from Kherson in Ukraine held price gains in check, as did ongoing Covid news from China, the latest being that millions of residents were told to get tested in Guangzhou – an ominous portent that this manufacturing hub could be the next city to be fully locked down under the country's zero-tolerance infection policy (more than half of its eleven districts are already under some form of restriction).

Meanwhile, Chongqing, a city of around 30 million people, moved to tighten measures on Thursday morning in two districts.

While CPI inflation data was the talk of Thursday, not all analysts were in a bullish mood: Thomas Westwater, analyst at DailyFX, noted that the WTI crude oil prompt spread—the difference between the current and next month's contract prices—fell to 0.80 on Thursday, down from 1.23 at the start of November, and he remarked that "A falling prompt spread is generally seen as a bearish sign for prices."