UPDATE 6-Oil rises 2% but set for weekly loss amid recession fears

Updates prices, market activity, adds commentary; changes byline, dateline, previous LONDON

By Stephanie Kelly

NEW YORK, July 8 (Reuters) – Oil prices rose about 2% in volatile trade on Friday but were still heading for a weekly decline as concern over a potential recession-driven demand downturn outweighed tight global supplies.

Central banks around the world are raising interest rates to tame inflation, spurring fears that rising borrowing costs could stifle growth, while mass COVID-19 testing in Shanghai this week was cause for worry over potential lockdowns that could also hit oil demand. nL1N2YM0N4

Brent crude LCOc1 futures rose $2.14, or 2%, to $106.79 a barrel by 11:35 a.m. EDT (1535 GMT). U.S. West Texas Intermediate crude CLc1 rose $1.53, or 1.5%, to $104.26 a barrel. Both benchmarks traded in negative territory during the session, before rising again.

Brent was still set to register a weekly decline of about 4% and WTI a loss of 3.7%, following on from the first monthly decline since November. Prices tumbled on Tuesday, when Brent’s $10.73 drop was the contract’s third-biggest fall since it started trading in 1988.

U.S. non-farm jobs data showed job growth increased more than expected in June, a sign of persistent labor market strength that gives the Federal Reserve ammunition to deliver another 75-basis-point rate hike later this month. nL1N2YO2M6

“The oil market is looking at the jobs report as a double-edged sword,” said Phil Flynn, analyst at Price Futures Group. “The jobs number was positive from a demand perspective. On the bearish side, the market is concerned that if the jobs market is strong, the Fed can be more aggressive with raising rates.”

Oil has soared over the first half of the year. Brent crude came close to the record high of $147 after Russia launched its invasion of Ukraine in February, adding to supply concerns that some analysts expect to worsen.

“Economic worries may have roiled oil prices this week, but the market is still flashing bullish signals. This is because supply tightness is more likely to intensify from this point than to ease,” said Stephen Brennock of oil broker PVM.

Western bans on Russian oil exports have supported prices and sparked a re-routing of flows while the Organization of the Petroleum Exporting Countries (OPEC) and its allies are struggling to deliver on pledged production increases.

(Reporting by Stephanie Kelly; additional reporting by Alex Lawler, Florence Tan and Jeslyn Lerh
Editing by Marguerita Choy and David Goodman)

((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))