By Ambar Warrick
Investing.com -- Oil prices extended gains on Tuesday as markets held out for a swift recovery in Chinese demand this year, although anticipation of an address by Federal Reserve Chair Jerome Powell kept traders from making big bets.
Crude prices recovered sharply on Monday after the International Energy Agency reiterated that a recovery in China will drive oil demand to record highs this year, as the country marked a clear pivot away from its strict anti-COVID policies in January.
But economic data released last week painted a somewhat mixed picture of the world’s second-largest economy, as it grapples with rising COVID-19 cases. Still, air and road transport data for January showed a clear improvement in travel demand, potentially heralding a bigger bounceback.
Brent oil futures rose 0.3% to $81.61 a barrel, while West Texas Intermediate crude futures rose 0.2% to $74.70 a barrel by 20:50 ET (01:50 GMT). Both contracts surged over 1% on Monday.
But crude markets were still reeling from sharp losses last week, as stronger-than-expected U.S. nonfarm payrolls data boosted the dollar and ramped up bets of more interest rate hikes by the Federal Reserve this year.
Focus now turns to a discussion with Fed Chair Jerome Powell at the Economic Club of Washington D.C. later in the day. His comments on the U.S. economy will be closely watched, especially in light of recent strength in the jobs market, which gives the Fed sufficient headroom to keep raising interest rates.
Hawkish signals from the Fed had also weighed on crude markets last week, after the central bank raised interest rates as expected and signaled there were more hikes in store this year.
Oil prices are trading largely flat for the year to date, amid fears of a global recession this year driven by rising interest rates and relatively high inflation. Fourth-quarter economic growth readings for several major countries already indicated a cooling in activity.
On the supply front, focus remains on Russian crude shipments as the U.S. and European Union impose more price caps on the country’s oil. Moscow has so far downplayed any speculation that it will cut production and sales, given that it has steady buyers in India and China.
U.S. crude inventories will also be in focus this week after the country logged six consecutive weeks of builds.