Oil’s rough start to the year worsened as a deteriorating demand outlook came to the fore, buttressed by predictions for a US recession, China’s near-term struggles with Covid-19, and milder winter weather.
(Bloomberg) — Oil’s rough start to the year worsened as a deteriorating demand outlook came to the fore, buttressed by predictions for a US recession, China’s near-term struggles with Covid-19, and milder winter weather.
West Texas Intermediate fell toward $75 a barrel after sinking 4.2% on Tuesday in the biggest drop since November. A rising death toll in China from the swift easing of virus curbs is overwhelming crematoriums, and there are warnings of more casualties heading into the Lunar New Year. Above-average temperatures in the US and Europe, meanwhile, are easing fears of an energy crunch.
Crude’s dwindling levels of open interest have left it open to sharp swings in recent months. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year.
The impact of a pre-Christmas freeze that hobbled refinery capacity in some parts of the US should start to become clearer in inventory data this week, with the industry-funded American Petroleum Institute’s figures due later. Warnings that a US recession is on the cards and China’s surging virus cases continue to cloud the demand outlook.
“The odds are that economic activity and oil demand in the world’s biggest importer will continue to weaken as it learns to live with the Covid-19 virus,” said Stephen Brennock, an anlayst at PVM Oil Associates. “And it’s not just China that is suffering from economic malaise.”
Crude output from the Organization of Petroleum Exporting Countries edged higher last month as Nigeria partially reversed a long-term slump by cracking down on theft. The country effectively provided the entire gain, as other members stuck to production curbs.
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