A strong U.S. dollar and above-average temperatures in the U.S. and Europe, which allayed concerns about an energy shortage, contributed to Tuesday’s greatest decline in crude prices since mid-November. This contrasts with crude prices recording daily and annual advances by the end of 2022, as reported by Ship & Bunker.
Brent dropped $3.81 to close at $82.10 a barrel, while West Texas Intermediate fell $3.33 to settle at $76.93 per barrel.
There are several reasons to be concerned, according to Mizuho analyst Robert Yawger: “The China COVID-19 crisis and the worry of a soon-to-come recession are exerting pressure on the market.”
Despite a recent relaxation of its zero-tolerance illness policy, traders have expressed concern about China’s general economic resilience. The country increased its export quotas for refined oil products in the first batch for 2023, citing weak local demand as the reason.
Difficulty for economy
The doom on Tuesday came as IMF managing director Kristalina Georgieva said that this year will be more difficult for the global economy than 2022 because the economies of the U.S., Europe, and China are all slowing at the same time.
In other oil-related news on Tuesday, member Nigeria’s crackdown on oil theft helped the Organization of Petroleum Exporting Countries (OPEC) increase supply last month by 150,000 barrels per day (bpd), reversing a decline in contributions. The total output of the organisation was 29.14 million bpd.
Nigeria’s output, according to Bloomberg, is still only half of what it was a decade ago, and Angola in particular is showing symptoms of stress. Other members are also “struggling with under-investment and operational problems,” according to Bloomberg.
Regarding the overall effect of OPEC, Commerzbank stated that it anticipates that the global economic outlook will have a “much more important role” in oil price developments than the production choices made by the cartel. It also anticipates that recovery “in key economic areas” will push Brent back toward $100 per barrel sometime in the second quarter.
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