Oil dips as recession worries outweigh rising demand forecast

© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices edged slightly lower on Monday, as worries of a possible recession outweighed an outlook for higher fuel demand with the upcoming U.S. driving season and Shanghai's plans to reopen after a two-month coronavirus lockdown.

Brent crude futures fell 13 cents, or 0.8%, to $112.43 a barrel by 10:46 a.m. ET (1446 GMT). U.S. West Texas Intermediate (WTI) crude declined 52 cents, or 0.5%, to $109.72.

"There are black clouds gathering around the financial markets here and it has started to impact crude oil," said Bob Yawger, director of energy futures at Mizuho.

"The economic wellbeing of the global economy is questionable at this point," he added.

Both benchmarks were down after two straight sessions of gains.

Losses were limited by expectations that gasoline demand would remain high as the United States was set to enter its peak driving season beginning on Memorial Day weekend at the end of May.

Despite fears that soaring fuel prices could dent demand, analysts said mobility data from TomTom and Google (NASDAQ:GOOGL) had climbed in recent weeks, showing more drivers on the road in places such as the United States.

To address a major supply crunch and blunt rising prices, the White House is weighing an emergency declaration to release diesel from a rarely used stockpile, an administration official said.

The White House is considering tapping the Northeast Home Heating Oil Reserve, created in 2000 to help with supply issues and used only once in 2012 in the wake of Hurricane Sandy. The impact from such a release would be limited by the relatively small size of the reserve, which only contains 1 million barrels of diesel.

The European Union's inability to reach a final agreement on banning Russian oil after its invasion of Ukraine, which Moscow calls a "special operation", has stopped oil prices from climbing much higher. Hungary continues to hold out against the proposed ban, ensuring no sudden shock to supply for now.

"The persistent squeeze in refined petroleum products in the U.S. and ever-present Ukraine/Russia risk underpinned prices," said Jeffrey Halley, a senior market analyst at OANDA.

Shanghai, China's commercial hub, aims to normalize life from June 1 as its coronavirus caseloads decline.

Lockdowns in China, the world's top oil importer, have hammered industrial output and construction, prompting moves to prop up the economy, including a bigger than expected mortgage rate cut last Friday.