Oil prices retreat on demand destruction fears, benchmarks off 4% for week

© Reuters. The chimneys of the Total Grandpuits oil refinery are seen just after sunset, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann

By Sonali Paul

MELBOURNE (Reuters) - Oil prices turned down in early trade on Friday after a slight rebound in the previous session, leaving them set to fall for a second straight week on worries that central banks' aggressive rate hikes and China's COVID-19 curbs will hurt demand.

Brent crude futures slipped 12 cents, or 0.1%, to $89.03 a barrel at 0051 GMT, after rising 1.3% on Thursday.

U.S. West Texas Intermediate (WTI) crude futures fell 19 cents, or 0.2%, to $83.35 a barrel, after climbing 2% in the previous session.

Both benchmarks were down about 4% for the week, with the market sliding at one point to its lowest level since January.

The drop has come despite a small output cut by the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, Russia's threat to cut oil flows to any country that backs a price cap on its crude, and a weaker outlook for U.S. oil production growth.

The U.S. Energy Information Administration on Thursday said it expected U.S. crude output to rise by 540,000 barrels per day to 11.79 million bpd in 2022, down from an earlier forecast for a 610,000 bpd increase.

Analysts said in light of the supply outlook, the sell-off, which sent the 50-day moving average below the 200-day moving average mid-week in what's referred to as a 'death cross', may have been overdone, as demand in China, the world's biggest oil importer, could recover swiftly.

"China demand is more difficult to predict, but a post-COVID reopening has previously seen a snap back rather than a gradual rise in demand. In that context the fundamentals appear skewed against the latest technical signals," National Australia Bank (OTC:NABZY) analysts said in a note.

For now, curbs are tightening in China. The city of Chengdu on Thursday extended a lockdown for most of its more than 21 million residents, while millions more in other parts of China were urged not to travel during upcoming holidays.