Oil rose after falling almost 5% over the prior two sessions as investors weighed the outlook for supply and demand following a big interest-rate hike from the Federal Reserve and rising US crude output.

West Texas Intermediate futures climbed toward $117 a barrel in Asian trading on Thursday. The Fed raised interest rates by 75 basis points as the central bank seeks to combat surging inflation. US crude production rose to 12 million barrels a day last week, the first time at that level since early 2020, according to data from the Energy Information Administration.

Crude is up more than 50% this year following a tightening of energy markets as an economic rebound coincided with upended trade flows after Russia’s invasion of Ukraine. Global supply will struggle to meet rising demand in 2023, the International Energy Agency said in a monthly report on Wednesday.

Russia’s war in Ukraine has fanned inflation worldwide, with US retail gasoline recently topping $5 a gallon. A Covid-19 resurgence across China has weighed on demand and capped further gains in oil prices but the world’s biggest crude importer is seeking to exit from strict virus restrictions. Mass testing drives in Shanghai signal that the recovery will be bumpy, however.

“Oil is still rather choppy as traders turn cautious about the Fed bringing down inflation,” said Stephen Innes, managing partner at SPI Asset Management. “At the same time, China’s revolving Covid policy is challenging to digest, but it’s showing some economic agility in dealing with the current lockdowns.”

US crude inventories expanded for a second week, while supplies at the key storage hub at Cushing dropped, according to the EIA. Gasoline demand dipped last week but still remains above 9 million barrels a day.

Brent’s nearest futures contract was trading around $3 above the next month, a premium that indicates scarce supply of the crudes that underpin the global benchmark, including those from the North Sea.

Bloomberg