Oil Dives 3.5%, Trade Choppy On Worries About China, Global Economy
- Oil prices tumbled 3.5% in volatile trade on Tuesday, pressured by weak demand data from China, a gloomy economic outlook and a stronger U.S. dollar. Brent futures for March delivery fell $3.03 to $82.88 a barrel and U.S. crude fell $2.81 to $77.45 per barrel.
- "There is plenty of reason for concerns here - the China COVID-19 situation and the fear of recession in the foreseeable future is putting pressure on markets," Mizuho analyst Robert Yawger said.
- The Chinese government has raised export quotas for refined oil products in the first batch for 2023. Traders attributed the increase to expectations of poor domestic demand as the world's largest crude importer continues to battle waves of COVID-19 infections. Another concern is that China's factory activity shrank in December as surging infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs.
- The dollar, meanwhile, was headed for its largest one-day rise in over three months. A stronger dollar can crimp demand for oil, making the dollar-denominated commodity more expensive for holders of other currencies.
- 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 Organization of the Petroleum Exporting Countries (OPEC) and its allies. The bank expects signs of economic recovery "in key economic areas" to push Brent back towards $100 a barrel, which it said could happen from the second quarter of the year onwards.
- "The outlook remains highly uncertain, though, which would ensure oil prices remain highly volatile," said Craig Erlam, senior market analyst at OANDA.