Oil prices rose about $1 in volatile trade on Tuesday as tight global supplies outweighed worries that fuel demand would be hit by a possible recession and fresh COVID-19 curbs in China.

U.S. West Texas Intermediate (WTI) crude rose 96 cents, or 0.8% to $121.89 a barrel at 0634 GMT, while Brent crude futures rose $1.05, or 0.9%, to $123.32 a barrel.

Tight global supplies have been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports, while other producers in OPEC+ struggle to meet their production quotas and Russia faces bans on its oil over the war in Ukraine.

ANZ Research analysts cited Libya’s oil minister Mohamed Aoun saying production in the country has dropped to 100,000 barrels per day from 1.2 million bpd last year.

“The continuing squeeze on refined products globally, as well as a lack of investment to bring online more supplies from OPEC members, or other sources, means lost Russian production is nowhere near being covered by global markets,” said Jeffrey Halley, senior market analyst at OANDA, in a note.

The market will be awaiting weekly U.S. inventory data from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday for a view of how tight crude and fuel supply remain.

Six analysts polled by Reuters expect U.S. crude inventories fell by 1.2 million barrels in the week to June 3, while forecasting that gasoline stockpiles rose by about 800,000 barrels and distillate inventories, which include diesel and heating oil, were unchanged.

On the demand side, China’s latest COVID outbreak traced to a bar in Beijing has raised fears of a new phase of lockdowns just as restrictions in the country were being eased and fuel demand was expected to firm.

The Chinese capital’s most populous district, Chaoyang, kicked off a three-day mass testing campaign among its roughly 3.5 million residents on Monday. About 10,000 close contacts of the bar’s patrons have been identified, and their residential buildings put under lockdown.]

Looking ahead, oil prices may face pressure if the U.S. Federal Reserve surprises the markets with a higher-than-expected interest rate hike, CMC Markets analyst Tina Teng said.

“Otherwise, traders’ focus will go back to China’s COVID restrictions, when we could see prices tracing the demand outlook of the world’s second-largest economy,” she added.
Source: Reuters (Reporting by Sonali Paul and Isabel Kua; Editing by Richard Pullin and Kenneth Maxwell)