Oil prices continue to fall due to uncertainty
2023.01.03 09:47
Oil prices continue to fall due to uncertainty
Budrigannews.com – On worries that a sharp slowdown in global economic growth in 2023 would have a negative impact on crude demand, oil prices fell on Tuesday, reversing some of their gains from the previous year.
Futures were down 2.2% at $78.53 a barrel by 09:25 ET (14:25 GMT), and the Brent contract was down 2% at $84.19 a barrel.
As China, the world’s largest importer of crude, announced a rather abrupt reopening from COVID-19, markets bet on resurgent demand, which resulted in sharp gains for the crude market as the year 2022 came to a close.
However, following a warning from International Monetary Fund Managing Director Kristalina Georgieva that the global economy faces “a tough year, tougher than the year we leave behind,” the tone has changed on the first full day of trading of the new year.
“We expect 33% of the world economy to be in downturn,” Georgieva said in a meeting with CBS. ” Why? because all three major economies—China, the EU, and the United States—are sluggish at the same time.
After a year of strict activity restrictions, Beijing relaxed anti-COVID measures in December, resulting in an unprecedented rise in infections and volatility in the crude markets.
“Traders are still debating whether to use an Eastern or Western-style reopening strategy for China. According to SPI Asset Management managing partner Stephen Innes, “this is where a good chunk of volatility sits in optionality.”
“We could see oil quickly move to Brent $100 bbl on a western-style reopening where economic activity accelerates right out of the gate; However, it is also possible that growth will slow down in the early stages of reopening, as has been the case in a number of East Asian economies that have previously implemented Covid controls that are relatively tight. As a result, in that scenario, ascendancy may be less pronounced; however, a more back-loaded positive “reopening impulse” in the second quarter may then propel Brent to $100 bbl.
The supply side of the equation must also be understood.
As sanctions hampered Moscow’s exports, Russia’s crude shipments fell to their lowest level for 2022 during the last four weeks of the year.
This suggests that global supply will remain tight for much of 2023, ensuring that the crude market will continue to be supported to some extent even in the event of a global recession. The war in Ukraine does not appear to be coming to an end anytime soon, and the Organization of Petroleum Exporting Countries is limited in the amount of oil it can pump.
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