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Oil edged lower on Wednesday after slumping in the previous session, weighed down by concerns about weak demand due to the state of the global economy.
Brent futures for March delivery fell 13 cents to US$81.97 a barrel, a 0.1 per cent loss, by 1.15pm Singapore time. US crude dropped 28 cents, or 0.3 per cent, to US$76.65 per barrel.
Both benchmarks plunged more than 4 per cent on Tuesday, with Brent suffering its biggest one-day loss in more than three months.
“Warning signs of global recession, China’s lacklustre recovery with surging Covid-19 cases, renewed strength in the US dollar and dampened risk sentiment are all catalysts keeping oil prices in check overnight,” said Yeap Jun Rong, market analyst at IG, in a note.
The Chinese government increased export quotas for refined oil products in the first batch for 2023, signalling expectations of poor domestic demand.
Top oil exporter Saudi Arabia may further cut the prices for its flagship Arab Light crude grade to Asia in February, after they were set at a 10-month low this month, as concerns of oversupply continued to cloud the market.
“The market remains worried about the impact of macro factors such as the economic downward pressure,” said analysts from Haitong Futures.
The head of the International Monetary Fund warned that much of the global economy would see a tough year in 2023 as the main engines of global growth – the United States, Europe and China – are all experience weakening activity.
The Fed had raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each. If the Fed intensifies its rate hikes, that could slow the economy and hamper fuel consumption.
Lending oil some support, the dollar weakened on Wednesday after posting big gains in the previous session. A weaker dollar typically boosts demand for oil as dollar-denominated commodities become cheaper for holders of other currencies.
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’s Pascagoula, Mississippi, refinery is set to receive the first cargo of Venezuelan crude in nearly four years, according to shipping documents seen by Reuters on Tuesday.
US crude output in 2023 is expected to rise by an average of 620,000 barrels per day, according to the latest government estimates, a third less than the roughly one million bpd some forecasts called for at the start of the year.
Commerzbank said it expects the global economic outlook to play a “much more important role” in oil price developments than production decisions taken by the Organisation 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 back towards US$100 a barrel, which it said could happen from the second quarter of 2023 onwards.
