Oil’s rough start to the year worsened as China’s mounting Covid death toll overshadows the country’s resolve to boost the economy, with thin liquidity compounding price swings.
(Bloomberg) — Oil’s rough start to the year worsened as China’s mounting Covid death toll overshadows the country’s resolve to boost the economy, with thin liquidity compounding price swings.
West Texas Intermediate fell as much as 5.3% before paring losses to trade near $74 a barrel. The plunge comes despite news that China’s policymakers have made it a priority to boost economic consumption in 2023. The move would benefit crude and energy markets as China is the top crude importing country.
However, warnings that as many as 25,000 people a day could die from Covid in January cast a pall over efforts to reopen the economy and pushed the timeline for a recovery further out. Deepening contango in front-month oil spreads reflected the dour near-term view.
“The disconnect between how forward-looking assets like energy equities anticipated a China recovery does not translate to immediate crude strength as there is a lot near-term risk to demand before we see recovery take hold,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management.
Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. 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.
A pre-holiday freeze that hobbled refinery capacity in some parts of the US has lowered crude processing capacity in North America and is also weighing on prices.
“There’s a few more weeks of softness I would think,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview.
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