Oil dives 3.5%, trade choppy on worries about China, global economy

Brent futures for March delivery fell $3.03 to $82.88 a barrel, by 11:45 a.m. ET (16:45 GMT). U.S. crude fell $2.81 to $77.45 per barrel.

In early trade, both contracts had risen more than $1 a barrel.

“There is plenty of reason for concerns here – the China COVID-19 situation and the fear of recession in the foreseeable future is putting pressure on markets,” Mizuho analyst Robert Yawger said.

The Chinese government has raised export quotas for refined oil products in the first batch for 2023. Traders attributed the increase to expectations of poor domestic demand as the world’s largest crude importer continues to battle waves of COVID-19 infections.

Another worry: China’s factory activity shrank in December as surging infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs.

Adding to the gloomy economic outlook, IMF Managing Director Kristalina Georgieva on Sunday said the economies of the United States, Europe and China, the main engines of global growth, were all slowing simultaneously, making 2023 tougher than 2022 for the global economy.

The dollar, meanwhile, was headed for its largest one-day rise in over three months. A stronger dollar can crimp demand for oil, making the dollar-denominated commodity more expensive for holders of other currencies.

On Wednesday, the market will scour minutes of the U.S. Fed’s December policy meeting. The Fed raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.

Also on the radar, U.S. December payrolls data is due on Friday. Analysts expect the data to show the labour market remains tight.

Commerzbank said it expects the global economic outlook to play a “much more important role” in oil price developments than production decisions taken by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known collectively as OPEC+.

The bank expects signs of economic recovery “in key economic areas” to push Brent back towards $100 a barrel, which it said could happen from the second quarter of the year onwards.

“The outlook remains highly uncertain, though, which should ensure oil prices remain highly volatile,” said Craig Erlam, senior market analyst at OANDA.

This story has been published from a wire agency feed without modifications to the text.