Oil steady as tight market competes with recession fears

© Reuters. FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian

By Noah Browning

LONDON (Reuters) - Oil prices were largely steady on Monday as a relatively tight global supply picture competed with fears of a recession and a rising dollar.

Brent crude futures for October settlement fell 34 cents, or 0.3%, to $96.38 a barrel by 1105 GMT.

U.S. West Texas Intermediate (WTI) crude for September delivery - due to expire on Monday - was down 42 cents, or 0.4%, at $90.35. The more active October contract was down 27 cents, or 0.3%, at $90.17.

High natural gas prices exacerbated by reduced supply from Russia is strengthening oil demand, said Ole Hansen, head of commodity strategy at Saxo Bank.

Brent crude had hit nearly $140 a barrel in early March but has since retreated as inflation hit multi-decade highs.

"While funds continued to sell crude oil in anticipation of an economic slowdown, the refined product market was sending another signal with refinery margins on the rise again, partly due to surging gas prices making refined alternatives, such as diesel, look cheap," Hansen said.

Supply worldwide remains relatively tight, with the operator of a pipeline supplying about 1% of global oil via Russia saying it will reduce output again because of damaged equipment.

Meanwhile, the dollar index rose to a five-week high on Monday. A stronger U.S. currency is generally bearish for the market because much of the world's oil trade is conducted in dollars.

Investors will also be paying close attention to comments by Fed Chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

Pressuring prices, meanwhile, were worries over slowing fuel demand in China, the world's largest oil importer, partly because of a power crunch in the southwest.

Beijing cut its benchmark lending rate on Monday as part of measures to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

Meanwhile, the leaders of the United States, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday, which could allow sanctioned Iranian oil to return to global markets.