Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022.
Yang Mei Hu oil products tanker owned by COSCO Shipping gets moored at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Reuters / TATIANA MEEL

Oil prices recovered on Thursday from a steep drop in the previous session, supported by tight oil supply and peak summer consumption, after a hefty U.S. rate hike sparked fears of slower economic growth and less fuel demand.

Brent crude futures rose 86 cents, or 0.7%, to $119.37 a barrel by 0644 GMT while U.S. West Texas Intermediate (WTI) crude futures climbed to $116.27 a barrel, up 96 cents, or 0.8%.

Prices slipped more than 2% overnight after the Federal Reserve raised its key interest rate by three-quarters of a percentage point, the biggest hike since 1994.

The dollar index retreated from a 20-year high, easing downward pressure on oil prices. A stronger greenback makes U.S. dollar-priced oil more expensive for holders of other currencies, curtailing demand.

Investors remained focused on tight supplies and robust demand as Western sanctions restricted access to Russian oil.

"It was overall a volatile session across almost all markets yesterday," said Howie Lee, an economist at Singapore's OCBC bank.

"Tight fundamentals suggest any dips in oil prices are likely to be short-lived, or shallow, or possibly both."

In Libya, oil output has collapsed due to the shutdown of production and export facilities as a tactic in the country's political stalemate. Production fell to 100,000-150,000 barrels per day, a spokesman for the oil ministry said on Tuesday, a fraction of the 1.2 million bpd seen last year.

Also, optimism that China's oil demand will rebound as it eases COVID-19 restrictions supported the price outlook.

"A rebound in China demand sentiment, and expected seasonal ramp-up in OECD oil demand into August leaves price risk to the upside through 3Q 2022," said Baden Moore, head of commodities research at the National Australia Bank.

U.S. crude production, which has been largely stagnant over the last few months, edged up 100,000 barrels per day last week to 12 million bpd, its highest level since April 2020, data from the Energy Information Administration showed. [EIA/S]

U.S. crude stocks and distillate inventories rose while gasoline inventories fell in the week through June 10, the EIA said.