By Florence Tan and Trixie Sher Li Yap
SINGAPORE (Portal) – Oil prices slipped from their highest in a month on Tuesday after Chinese economic data dampened market sentiment and the head of the International Monetary Fund warned of a tougher 2023.
Brent crude futures were down 25 cents, or 0.29%, to $85.66 a barrel by 0400 GMT, while US West Texas Intermediate crude was at $80.06 a barrel, down 20 cents, or 0 .25%.
Weaker factory data from China, the world’s largest crude oil importer and second largest oil consumer, weighed on prices. The Caixin/Markit Manufacturing PMI fell to 49.0 in December from 49.4 in November. The index remained below the 50-point mark, which separates growth from contraction, for five straight months.
Still, there was a return to regular activities in China on Monday as some people in key cities braved the cold and a surge in COVID-19 infections, raising the prospect of a rebound in the economy and oil demand as more people move away from the infection recovered.
“The market cannot count on the rapid recovery of China’s economy after three years (pandemic control), the mass bankruptcy of small and medium-sized enterprises, the rising unemployment rate, the rapid increase in the social savings rate, and the rapid growth in the number of infections and deaths in recent months,” said analyst Leon Li of CMC Markets.
This followed news of a larger-than-expected increase in the first batch of oil product export quotas for 2023 released by the Chinese government. A handful of traders attributed this to expectations of weak domestic demand as the country continued to battle waves of COVID-19.
Additionally, IMF Managing Director Kristalina Georgieva said Sunday that the United States, Europe and China — the main engines of global growth — were all slowing at the same time, making 2023 more difficult for the global economy than 2022.
Oil prices settled more than 2% higher on Friday, with Brent and WTI ending 2022 up 10.5% and 6.7% year-on-year, respectively.
The story goes on
Commodities experienced a substantial $12.3 billion uptrend in the week ended Dec. 27, the biggest weekly uptrend in 2022, analysts at Societe Generale said in a Jan. 3 note.
“The top-flowing commodity was Brent, which was up $3.4 billion as Russia outlined its response to the EU and G7 imposing a price cap on the country’s crude oil exports to third parties,” they said analysts.
President Vladimir Putin banned the supply of crude oil and oil products to nations that adhered to the cap for five months from February 1. His decree also included a clause allowing him to override the ban in special cases.
Russian crude oil was diverted from Europe to India and China. Traders said Moscow plans to increase diesel exports from the Baltic port of Primorsk to 1.81 million tons in January, but exports from Tuapse are expected to fall to 1.333 million tons.
Looking ahead over the coming months, Suvro Sarkar, senior energy analyst at DBS Bank, believes concerns about the global economic slowdown will continue to compete with the pace of China’s reopening to push oil prices higher.
“A weaker USD will help to some extent, (while) near-term factors will include inventory updates and data on Russian shipments,” he said.
(Reporting by Florence Tan and Trixie Yap; Additional reporting by Chen Aizhu and Muyu Xu; Editing by Christopher Cushing and Bradley Perrett)