By Arathy Somasekhar
HOUSTON (RockedBuzz via Reuters) – Oil prices fell 4% on trading volatility on Tuesday, boosted by weak demand data from China, a bleak economic outlook and a stronger US dollar.
Brent futures for delivery in March fell $3.81, or 4.4%, to $82.10 a barrel, the biggest one-day decline in more than three months.
U.S. crude fell $3.33 to $76.93 a barrel, a loss of 4.1%, the biggest drop in more than a month. Both benchmarks were up $1 a barrel earlier in the session.
“There are many reasons for concern here: China’s COVID-19 situation and fears of a recession in the near future are putting pressure on markets,” said Mizuho analyst Robert Yawger.
The Chinese government has increased export quotas for refined petroleum products in the first batch for 2023. Traders attributed the increase to expectations of weak domestic demand as the world’s largest importer of crude oil continues to battle waves of infections.
Activity at Chinese factories eased in December as rising infections disrupted production and weighed on demand after Beijing largely lifted anti-virus caps.
Adding to the gloomy economic outlook, IMF Chief Executive Kristalina Georgieva said on Sunday that the economies of the United States, Europe and China are all slowing at the same time, making 2023 more difficult than 2022 for the global economy.
The dollar posted its biggest one-day increase in more than 2 weeks. A stronger dollar may curb demand for oil as dollar-denominated commodities become more expensive for holders of other currencies.
On Wednesday, the market will analyze the minutes of the US Fed’s December policy meeting. The Fed raised interest rates by 50 basis points (bps) in December after four consecutive hikes of 75bps each.
Oil inventories at the Cushing storage hub rose about 176,000 barrels to 28.6 million barrels in the week to Dec. 30, a broker said, citing data from Genscape.
Crude inventories are expected to rise by 2.2 million last week, according to a preliminary RockedBuzz via Reuters poll shown on Tuesday.
On the supply side, the US government released 2.7 million barrels of oil from strategic oil reserves last week, while Chevron Corp’s oil major Pascagoula, Mississippi refinery is set to receive the first shipment of Venezuelan crude in nearly 4 years, according to shipping documents seen by RockedBuzz via Reuters on Tuesday.
U.S. crude production in 2023 is expected to increase by an average of 620,000 barrels a day, according to the latest government estimates, a third less than the roughly 1 million barrels a day some forecasts called for earlier in the year.
Commerzbank said it expects the global economic outlook to play a “much larger role” in oil price developments than the 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 economic recovery “in key economic areas” to push Brent towards $100 a barrel, which could happen from the second quarter of the year onwards.
(This story was re-archived to remove the extraneous word “also” in paragraph 6)
(Reporting by Rowena Edwards; Additional reporting by Florence Tan and Trixie Yap in Singapore; Editing by David Gregorio and Nick Zieminski)