Oil bounces on pipeline shutdown but heads for weekly loss on demand woes

Oil prices bounced higher on Friday as closure of a major Canada-to-U.S. crude pipeline disrupted supplies, but both benchmarks were headed for a weekly loss on worries over slowing global demand growth.

Brent crude futures were at $76.73 a barrel, up 58 cents, or 0.76%, at 0716 GMT, after dropping 1.3% on Thursday.

U.S. West Texas Intermediate crude rose 52 cents, or 0.73%, to $71.98 a barrel, having settled 0.8% lower in the previous session.

News of an accident closing Canada's TC Energy's Keystone pipeline in the United States prompted a brief rally on Thursday, but prices finally eased as the market took a view that the closure would be brief. More than 14,000 barrels of crude oil spilled into a creek in Kansas, making it one of the largest crude spills in the United States in nearly a decade.

Previous spill-induced outages are typically rectified in about two weeks, RBC Capital analyst Robert Kwan said, although the latest outage may prove longer given that it involves a spill into a creek.

Oil prices are set to post their biggest weekly drop in months, since traders expect it will be some time before China easing its COVID controls feeds through to demand.

And surging infections will likely depress China's economic growth in the next few months, bringing a rebound only later in 2023, economists said.

"The market lacks conviction in calling a bottom to crude despite the strong losing streak of the past several sessions," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Thursday's price slump despite two major crude supply disruptions is a bit bewildering, she said.

"It is likely exacerbated by thinning trading activity, wherein the few remaining actors are playing it safe by continuing to sell and steering clear of the long side."

Also on the downside, the U.S. economy is heading into a short and shallow recession over the coming year, according to economists polled by Reuters who unanimously expected the U.S. Federal Reserve to go for a smaller 50 basis point interest rate hike on Dec. 14.

The European Central Bank will also likely lift its deposit rate by 50 basis points next week to 2.00%, another Reuters poll found, despite the euro zone economy almost certainly being in recession, as it battles inflation running at five times its target.

(Reporting by Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Bradley Perrett, Stephen Coates and Tom Hogue)