Oil futures settled Wednesday at their lowest in more than three weeks, extending a slide that analysts tied to fears over the outlook for global economic growth and surging COVID cases in China.
Crude oil kicked off 2023 with sharp losses Tuesday after logging yearly gains in 2022.
Price action
- West Texas Intermediate crude for February delivery CL.1, -5.12% CL00, -5.12% CLG23, -5.12% fell $4.09, or 5.3%, to settle at $72.84 a barrel on the New York Mercantile Exchange. Front-month contract prices for the U.S. benchmark settled at their lowest since Dec. 9, according to Dow Jones Market Data.
- March Brent BRN00, BRNH23, , the global benchmark, declined $4.26, or 5.2%, to $77.84 a barrel on ICE Futures Europe, with prices also ending at their lowest in more than three weeks.
- Back on Nymex, February gasoline RBG23, -4.22% fell 4.3% to $2.2592 a gallon, while February heating oil HOG23, -3.33% shed 3.7% to $2.9719 a gallon.
- February natural gas NGG23, +3.84% rose 4.6% to $4.172 per million British thermal units after losing nearly 11% on Tuesday.
Market drivers
Aggressive tightening of monetary policy by the Federal Reserve and other major central banks is driving fears of a global economic slowdown. Those concerns have weighed on crude prices and overall market sentiment, analysts said.
“We continue to see lower prices in the first half of 2023 as negative economic activity grips the world economy,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
While OPEC+ — made up of the Organization of the Petroleum Exporting Countries and its Russia-led allies — will make noise about production cuts, declining global growth will lean on market demand and challenge the group’s unity, Cardillo said.
Investors, meanwhile, have weighed optimism over the lifting of China’s strict COVID curbs, which were seen keeping a lid on demand from one of the world’s largest energy consumers, versus concerns over soaring infections.
“On the positive side, yes, we have China relaxing its COVID-related policies,” said Naeem Aslam, chief market analyst at AvaTrade. However, the COVID cases are rising, and this means that a “U-turn could be made anytime.”
As for other countries, they are “highly cautious about China,” and a large number of them have announced travelers coming from China to take the COVID test or are banning travelers outright like Morocco, said Aslam, in a market update.
The European Union was considering travel restrictions on passengers from China on Wednesday but China has pushed back with a threat of countermeasures.
Coronavirus tally: China awaits EU decision on COVID test requirements for Chinese travelers, rejects offers of help
Oil prices, meanwhile, extended their losses following the release of minutes from the Federal Reserve’s December policy meeting. The minutes, released about a half hour before oil futures settled for the session, showed that none of the 19 top Federal Reserve officials expect it will be appropriate to cut interest rates this year.
For now, WTI crude-oil prices continue to trade above the important support level of $70, “which really differentiates the bull and bear territory,” Aslam said. “The price has only recently flirted with the $80 and the fact that it is trading near the $76 and the Relative Strength index, a momentum indicator, is not overbought, “we could see another run in oil prices.”
Meanwhile, the weekly Energy Information Administration report on U.S. petroleum supplies will be released Thursday, a day later than usual because of Monday’s New Year holiday.
On average, analysts expect the report to show an increase of 4.5 million barrels in domestic crude inventories for the week ended Dec. 30, according to anS&P Global Commodity Insights survey. Analysts also forecast weekly supply declines of 1.6 million barrels for gasoline and 1.4 million barrels for distillates.
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