Global Economic Concerns And COVID in China Reduce Oil by 5%

On Wednesday, the price of oil dropped by more than $4 a barrel, marking the greatest percentage decline in the first two trading days of any year in more than three decades, as investors concerned over fuel demand as the global economy slowed and COVID-19 cases grew in China.

Brent futures closed at $77.84 a barrel, a loss of $4.26, or 5.2%. The daily closing price of U.S. crude was $72.84 a barrel, a loss of $4.09, or 5.3%.

Brent has plummeted by about 9.4% this week, marking its steepest two-day decline at the beginning of the year since January 1991, according to data from Refinitiv Eikon.

Bob Yawger, director of energy futures at Mizuho in New York, observed, "Crude oil is trading down due to fears about China's COVID-19 and the Federal Reserve imposing a worldwide recession, both demand-destroying events."

According to the World Health Organization, while no new coronavirus types have been detected in China, the government has underreported the number of deaths in its most recent, rapidly spreading outbreak.

The state of the global economy and rate increases by central banks also had a negative effect on petroleum prices.

The Institute of Supply Management (ISM) stated that manufacturing activity in the United States declined further in December, falling for a second consecutive month to 48.4 from 49.0 in November, the lowest level since May 2020.

Simultaneously, a study from the U.S. Department of Labor found that job openings declined less than anticipated, increasing concerns that the Federal Reserve may use the tight labor market as an excuse to keep higher interest rates for longer.

The Chinese government increased export quotas for refined oil products in the first batch of export quotas for 2023 in anticipation of weak domestic demand.

Saudi Arabia, the world's top oil producer, may decrease prices for its signature Arab Light crude grade to Asia in February, after putting them at a 10-month low for this month due to market concerns about an oversupply.

Reuters reported on Wednesday that OPEC oil production surged in December, despite a deal by the wider OPEC+ alliance to decrease production targets to aid the market.

According to research, the Organization of Petroleum Exporting Countries (OPEC) pumped 29 million barrels per day (bpd) in December, an increase of 120,000 bpd from November.

According to a revised Reuters poll, crude oil inventories likely grew by 1.2 million barrels last week, while distillate inventories likely declined.

According to market sources citing data from the American Petroleum Institute, crude oil inventories in the United States likely rose by 3.3 million barrels last week, while gasoline supplies rose by 1.2 million barrels and distillate stocks fell. [EIA/S]

Thursday morning, the Energy Information Administration will release its figures.