HOUSTON (Reuters) – Oil prices fell 4% in choppy trading on Tuesday, weighed down by weak demand data from China, a bleak economic outlook and a rising US dollar.
Brent crude futures for March delivery fell $3.81, or 4.4 percent, to $82.10 a barrel, the biggest daily drop in more than three months.
US crude fell $3.33 to $76.93 a barrel, a loss of 4.1 percent, its biggest drop in more than a month. Both benchmarks rose $1 a barrel early in the session.
“There are a lot of reasons for concern here – the COVID-19 situation in China and the fear of a recession in the foreseeable future is weighing on the markets,” said Robert Yawger, an analyst at Mizuho.
The Chinese government raised export quotas for refined petroleum products in the first batch for 2023. Traders attributed the increase to expectations of weaker domestic demand as the world’s largest importer of crude oil continues to battle waves of infection.
Chinese factory activity also contracted in December, as rising infections disrupted production and weighed on demand after Beijing largely removed anti-virus restrictions.
Adding to the bleak economic outlook, International Monetary Fund Managing Director Kristalina Georgieva said on Sunday that the economies of the United States, Europe and China are all slowing simultaneously, making 2023 a more difficult year than 2022 for the global economy.
The dollar recorded its largest one-day rise in more than two weeks. A stronger dollar could dampen demand for oil as dollar-denominated commodities become more expensive for holders of other currencies.
On Wednesday, the market will be looking for the minutes of the US Federal Reserve’s December monetary policy meeting. The Fed raised interest rates by 50 basis points in December after four consecutive increases of 75 basis points each.
Oil stocks at the Cushing Storage Center rose by about 176,000 barrels to 28.6 million barrels in the week ending Dec. 30, a broker said, citing Genscape data.
A Reuters preliminary poll on Tuesday showed that crude oil inventories are expected to rise by 2.2 million last week.
On the supply side, the US government released 2.7 million barrels of oil from the Strategic Petroleum Reserves last week, while oil major Chevron Corp. (CVX.N) The Pascagoula, Mississippi, refinery is set to receive its first shipment of Venezuelan crude oil in nearly 4 years, according to shipping documents seen by Reuters on Tuesday.
US crude production is expected to rise in 2023 by an average of 620,000 bpd, according to the latest government estimate, which is a third less than the roughly 1 million bpd some projections called for at the start of the year. Read more
Commerzbank said it expects the global economic outlook to play a “more important role” in oil price developments than production decisions made by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known collectively as OPEC+.
The bank expects signs of an economic recovery “in key economic areas” to push Brent crude back towards $100 a barrel, which it said could happen from the second quarter of the year onwards.
Reporting by Rowena Edwards Additional reporting by Florence Tan and Trixie Yap in Singapore Editing by David Gregorio and Nick Zieminski
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