By Adedapo Adesanya
In the first trade of the year, oil prices plunged by more than 4 per cent, pressured by weak demand data from China, a gloomy economic outlook, and a stronger US Dollar.
Brent futures fell by $3.81 or 4.4 per cent to $82.10 a barrel, while the US West Texas Intermediate (WTI) crude fell by $3.33 or 4.1 per cent to $76.93 per barrel.
China’s factory activity shrank in December as surging infections disrupted production and weighed on demand after the country largely removed curbs that are checking the spread of COVID-19.
The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.0 in December from 49.4 in November. The index has stayed below the 50-point that separates growth from contraction for five straight months.
The figures provide a snapshot of the challenges faced by Chinese manufacturers who now have to contend with surging infections after the country’s abrupt COVID policy U-turn in early December.
The world’s second-largest economy grew 3 per cent in the first nine months of 2022 and is expected to stay around that rate for the full year, one of its worst years in almost half a century.
Meanwhile, the Chinese government 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 infections.
The world’s largest oil importer increased its fuel export quotas by as much as 46 per cent for the first batch of 2023 allocations compared to the first batch of 2022.
Chinese authorities have approved exports of petrol, diesel, and jet fuel of 18.99 million tonnes, more than the 13 million tonnes of fuel export quotas China allocated in the first batch for 2022 as they seek to keep refining output high amid sluggish domestic demand.
Adding to the gloomy economic outlook, the International Monetary Fund (IMF), through its Managing Director, Ms Kristalina Georgieva, said the economies of the United States, Europe and China were all slowing simultaneously, making 2023 tougher than 2022 for the global economy.
Also, the Dollar posted its largest one-day rise in more than two weeks. A stronger Dollar can affect the demand for oil as dollar-denominated commodities become more expensive for holders of other currencies.
The market will look forward to the minutes of the US Federal Reserve December policy meeting. The US central bank raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.
Dipo Olowookere