OIL prices fell about 1 per cent on Wednesday, surrendering early gains as worries about a possible US recession outweighed optimism that China’s lifting of Covid-19 curbs will fuel demand for crude in the world’s top oil importer.

Brent futures fell 94 cents, or 1.1 per cent, to settle at US$84.98 a barrel. US West Texas Intermediate (WTI) crude fell 70 cents, or 0.9 per cent, to settle at US$79.48.

The session high for both benchmarks was the highest since Dec 5. For WTI, Wednesday was the first time in nine sessions that the contract settled down.

Oil prices reversed gains early in the afternoon along with Wall Street’s main indexes as hawkish comments from US Federal Reserve (Fed) officials sparked worries the central bank may not pause interest rate hikes any time soon.

Markets at first reacted positively to US data, which showed retail sales and manufacturing production declined more than forecast in December, on hopes the Fed would now ease up on interest rate hikes.

However, the gains were short-lived as St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester said rates needed to rise beyond 5 per cent to control inflation.

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Microsoft Corp said it would eliminate 10,000 jobs and take a US$1.2-billion charge, as cloud-computing customers reassess spending and the company braces for potential recession.

“Coming on the back of the weakness in retail sales, the steep drop in industrial production and news of more job lay-offs adds to fears the US could already be in recession,” analysts at ING, a bank, told customers in a note.

Supporting oil prices early in the session, China reported economic data that beat forecasts after the country started rolling back its zero-Covid policy in early December.

China’s lifting of restrictions should boost global oil demand to a record high this year, according to the International Energy Agency (IEA), while price cap sanctions on Russia could dent supply.

Rystad Energy, a consultancy, said the effect of sanctions on Russian crude exports after 1.5 months of the European Union embargo and G7 price cap has not been as devastating as some predicted.

Rystad said the losses were at about 500,000 barrels per day and that India and China remain key buyers of Russian crude.

Analysts expect a drawdown in US crude stocks of about 600,000 barrels last week, a Reuters poll showed, which could provide some price support.

The American Petroleum Institute (API) was set to release industry data at 4.30 pm EST (2130 GMT). The US government reports at 11 am on Thursday. Both weekly reports were delayed a day due to Monday’s Martin Luther King Day federal holiday. REUTERS