Oil prices tumbled early Wednesday, with Brent Crude falling back below $80 a barrel, amid concerns over immediate global oil demand with rising Covid cases in China and slowing economies around the world.
As of 8:33 a.m. ET Wednesday, US benchmark WTI Crude was down below $75 a barrel and was trading down 2.68% at $74.91. International benchmark Brent Crude fell below $80 and the front month contract fell 2.70% to $79.92.
Oil prices continued on Wednesday, Tuesday’s breakout, as both benchmarks fell 4% and Brent posted its biggest single-day drop in more than three months. The recent sell-off in oil was the result of gloomy economic expectations from the International Monetary Fund (IMF) for the state of China and the world economy in the first few weeks of 2023 and a strong US dollar.
Rising Covid cases in China and a slowdown in the Chinese economy are expected to weigh on oil demand and prices in the near term.
The Chinese economy faces a rough start to 2023, Kristalina Georgieva, executive director of the International Monetary Fund (IMF), told CBS’s Face the Nation in an interview aired on Sunday. China’s reopening and the subsequent spike in infections are “bad news” for the global economy in the short term, Georgieva said.
The market is currently focused on near-term deterioration in demand as China struggles with Covid-19, milder weather reduces demand for heating fuels and the IMF’s recent warning that a third of the world could enter recession in 2023, Saxo Bank said on Wednesday.
“Brent’s early December uptrend appears to be challenged with a break below $81, signaling another loss of momentum, initially towards $79.65,” bank strategists said.
The imminent catalyst for oil price direction will come later on Wednesday when the American Petroleum Institute (API) is to release its estimates of US commercial oil inventories.
By Tsvetana Paraskova for Oilprice.com
Other top reads from Oilprice.com: