LONDON: After falling in the previous session, oil fell sharply on Wednesday, weighed down by concerns about demand caused by the state of the global economy and rising COVID cases in China.
By 14:52 GMT, Brent futures had lost 3.7%, falling $79.06 per barrel, or $3.04. To $74.02, US crude lost $2.91, or 3.8%.
On Tuesday, both benchmarks fell more than 4%, with Brent experiencing its largest single-day decline in more than three months.
Stephen Brennock, an analyst at PVM Oil, stated, “Worries about the state of the global economy are front and center of traders’ minds and will remain so for the foreseeable future.”
In anticipation of weak domestic demand, the Chinese government also increased export quotas for refined oil products in the first batch for 2023.
Since prices for its flagship Arab Light crude grade to Asia have been set at a 10-month low for this month, top oil exporter Saudi Arabia may reduce them in February as concerns about oversupply continued to cloud the market.
Due to weakening activity in the United States, Europe, and China, the head of the International Monetary Fund (IMF) issued a warning that a significant portion of the global economy would face a challenging year in 2023.
The US Federal Reserve raised interest rates by 50 basis points (bps) in December, following four increases of 75 bps each. Monetary policy is also a focus. The economy may slow and fuel consumption may be hampered if the Fed increases its rate hikes.
A Reuters survey found that OPEC oil output increased in December despite the OPEC+ alliance’s agreement to lower production targets to support the market.
According to the survey, the Organization of the Petroleum Exporting Countries (OPEC) produced 29 million barrels per day (bpd) in December, an increase of 120,000 bpd from November.
The dollar fell on Wednesday after making significant gains in the previous session, lending oil some support. Oil demand typically rises as a result of a weaker dollar because commodities denominated in the dollar are less expensive for buyers holding other currencies.
According to a preliminary Reuters poll released on Monday, US crude oil stocks are likely to have increased by 2.2 million barrels and distillate stocks are likely to have decreased.
Data on US crude inventories will be made available by the American Petroleum Institute on Wednesday at 4:30 p.m. EDT (20:30 p.m. GMT). The figures from the Energy Information Administration will be made public on Thursday at 10:30 a.m. (1430 GMT).
In 2023, Bank UBS anticipates that Brent prices will reach $110 per barrel and WTI prices will reach $107.
