HOUSTON (Reuters) – Oil prices fell 3.5 percent in volatile trading on Tuesday, weighed down by weak demand data from China, a bleak economic outlook and a rising US dollar.
Brent crude futures for March delivery fell $3.03 to $82.88 a barrel by 11:45 AM ET (16:45 GMT). US crude fell $2.81 to $77.45 a barrel.
In early trading, both contracts rose by more than $1 a barrel.
“There are a lot of reasons for concern here – the COVID-19 situation in China and the fear of a recession in the foreseeable future is weighing on the markets,” said Robert Yawger, an analyst at Mizuho.
The Chinese government raised export quotas for refined petroleum products in the first batch for 2023. Traders attributed the increase to expectations of weaker domestic demand as the world’s largest importer of crude oil continues to battle waves of COVID-19 infections.
Another concern: Factory activity contracted in China in December as rising infections disrupted production and weighed on demand after Beijing largely removed anti-virus restrictions.
Adding to the bleak economic outlook, International Monetary Fund Managing Director Kristalina Georgieva said on Sunday that the economies of the United States, Europe and China, the main engines of global growth, are all slowing simultaneously, making 2023 a more difficult year than 2022 for the global economy.
Meanwhile, the dollar was heading for its biggest one-day rally in more than three months. A stronger dollar could dampen demand for oil, making a dollar-denominated commodity more expensive for holders of other currencies.
On Wednesday, the market will be looking for the minutes of the US Federal Reserve’s December monetary policy meeting. The Fed raised interest rates by 50 basis points in December after four consecutive increases of 75 basis points each.
Also on the radar, US payroll data for December is due on Friday. Analysts expect the data to show that the job market remains tight.
Commerzbank said it expects the global economic outlook to play a “more important role” in oil price developments than production decisions made by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known collectively as OPEC+.
The bank expects signs of an economic recovery “in key economic areas” to push Brent crude back towards $100 a barrel, which it said could happen from the second quarter of the year onwards.
“The outlook remains highly uncertain, though, ensuring that oil prices remain highly volatile,” said Craig Erlam, senior market analyst at OANDA.
Reporting by Rowena Edwards Additional reporting by Florence Tan and Trixie Yap in Singapore Editing by David Evans, David Goodman and David Gregorio
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