(Bloomberg) -- Oil dropped as concerns over tighter US monetary policy overshadowed optimism about a recovery in Chinese demand.
West Texas Intermediate fell toward $74 a barrel after closing 1.2% higher on Monday. Two Federal Reserve officials said the central bank will likely need to raise interest rates above 5% before pausing and holding to combat inflation. The dollar firmed, weighing on commodities priced in the currency.
Crude has had a sluggish start to the year as thin liquidity exacerbates price swings and forward curves signal ample supply. While remaining at multi-year lows, open interest for WTI contracts is showing its first tentative signs of recovery, and is now at its highest level since September.
Beijing this week provided refiners and traders with a generous import quota in its second allocation for 2023, as Asia’s biggest economy gears up for growth after rapidly dismantling its strict Covid restrictions late last year.
“Dollar weakness and growing optimism around the China demand story has provided support to prices,” said Warren Patterson, the Singapore-based head of commodities strategy at ING Groep NV. “However, in the near term, the market still appears comfortably supplied.”
Russian oil exports made a small gain last week, but that wasn’t enough to reverse a downtrend in shipments to a diminished group of buyers. The countries that had provided a lifeline for Moscow are starting to look less supportive than they were last year.