Oil Rebounds From Biggest Tumble This Year on Outlook for Demand

West Texas Intermediate climbed above $84 a barrel after shedding more than 2% on Monday, when U.S. equities swooned then recovered. The volatile trading comes as the Federal Reserve prepares the ground for interest-rate increases, and Russian troops amass on the border with Ukraine.

In recent months, oil bears have retreated as speculators turn more bullish amid lower stockpiles.

Crude rallied to a seven-year high last week as global consumption remained strong in the face of the omicron variant. While stockpiles usually grow early in the year, traders are fretting that by the Northern Hemisphere’s summer, when demand typically rises, inventories may be too low to prevent a jump in prices.

Also see: Oil Buyers Snap Up Diesel-Rich Crude as Omicron Fears Abate

“Right now the buffers are running really, really thin,” Amrita Sen, head of research at consultant Energy Aspects, said in a Bloomberg Television interview. “Demand is coming in far stronger than expected.”

A Russian invasion of Ukraine would potentially have widespread implications for energy and commodities markets, including oil and gas. The risk of that happening in the next few weeks stands at more than 50%, according to RBC Capital Markets analyst Helima Croft. Disruption to oil flows from Russia could easily send prices to $120 a barrel, JPMorgan Chase & Co. wrote last week.

Costlier oil is helping to fan inflationary pressures worldwide, prompting central banks to tighten monetary policy and leading governments to take steps to cushion the impact on consumers. On Tuesday, Japan said it will give subsidies to refiners in a bid to curb gasoline prices.