Oil Prices Spikes Upon Speculations of Further US Interest Rate Hikes

Oil prices rose in late morning Asian trade on Monday, reversing a weak start, as a recovery in Chinese demand and a weaker dollar supported a market rattled by the prospect of further US interest rate increases.

Brent crude futures were up 19 cents, or 0.23 percent, to $82.97 per barrel by 0410 GMT after initially falling. WTI crude futures (WTI) rose 20 cents, or 0.26 percent, to $76.88 per barrel.

Concerns about further Fed monetary tightening were exacerbated by high crude oil inventories in the United States, according to ANZ Bank analysts in a note issued Monday morning.

"It's like the battle of surging activity data in the East meets macro malaise in the West", said Stephen Innes, managing partner of SPI Asset Management, commenting on the competing sentiment drivers in the crude market.

"From an oil trader's perspective, the U.S. dollar should pull back as traders give up on a re-acceleration of Fed hikes; this, in turn, clears a path for more robust Chinese fundamentals to dominate commodity trading," Innes added.

A weaker dollar makes oil cheaper for holders of other currencies, boosting oil prices.

The failures of Silicon Valley Bank and New York-based Signature Bank, as well as fears of contagion, prompted a selloff in US assets at the end of last week, putting downward pressure on the dollar.

Saudi Aramco CEO Amin Nasser's comments on Chinese crude demand on Sunday also provided some support.

"If you considered China opening up and a pickup in jet fuels and very limited spare capacity, we are talking 2 million barrels, so as I said we are cautiously optimistic in the short to midterm and the market will remain tightly balanced," he said.

The remarks follow the announcement that Riyadh and Tehran had agreed to restore diplomatic relations in a deal brokered by China, potentially paving the way for the revival of a nuclear deal that would allow exports of currently sanctioned Iranian crude.

Oil's volatile start to the week follows Friday's positive momentum, when US employment data surprised to the upside. According to a survey, nonfarm payrolls increased by 311,000 in February, exceeding expectations of 205,000 job additions.

Baker Hughes Co, an energy services firm, said on Friday that U.S. energy firms this week reduced the number of oil and natural gas rigs operating for the fourth week in a row for the first time.