Oil prices fell more than 4% in the year’s first trade, weighed down by weak Chinese demand data, a bleak economic outlook, and a stronger US dollar.
Brent futures fell $3.81, or 4.4%, to $82.10 per barrel, while US West Texas Intermediate (WTI) crude fell $3.33, or 4.1%, to $76.93 per barrel.
China’s factory activity fell in December as rising infections disrupted production and weighed on demand after the country largely removed COVID-19-control measures.
In December, the Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.0 from 49.4 in November. For the fifth month in a row, the index has remained below the 50-point threshold that separates growth from contraction.
The figures provide a snapshot of the challenges confronting Chinese manufacturers in the aftermath of the country’s abrupt COVID policy U-turn in early December.
The world’s second-largest economy grew 3% in the first nine months of 2022 and is expected to grow at that rate for the rest of the year, making it one of the worst years in nearly half a century.
Meanwhile, the Chinese government increased refined oil export quotas in the first batch for 2023. Traders attributed the rise to expectations of weak domestic demand as the world’s largest crude importer battles infection waves.
The world’s largest oil importer increased its fuel export quotas by up to 46% for the first batch of 2023 allocations over the first batch of 2022.
Chinese authorities have approved 18.99 million tonnes of petrol, diesel, and jet fuel exports, which is more than the 13 million tonnes of fuel export quotas China allocated in the first batch for 2022, as they seek to maintain refining output amid weak domestic demand.
The International Monetary Fund (IMF), through its Managing Director, Ms Kristalina Georgieva, added to the bleak economic outlook by stating that the economies of the United States, Europe, and China were all slowing at the same time, making 2023 more difficult than 2022 for the global economy.
In addition, the US dollar rose the most in a single day in more than two weeks. A stronger dollar can impact oil demand by making dollar-denominated commodities more expensive for holders of other currencies.
The market is anticipating the US Federal Reserve’s December policy meeting minutes. The Federal Reserve of the United States raised interest rates by 50 basis points (bps) in December, following four consecutive increases of 75 bps.
