By Adedapo Adesanya
The oil market went down on Tuesday by more than 2 per cent as worsened economic fears and a flare-up in COVID-19 cases in China raised concerns over global demand.
Brent crude fell by $2.61 or 2.77 per cent to $93.58 a barrel as the United States West Texas Intermediate (WTI) crude lost $2.62 or 2.88 per cent to $88.51 per barrel.
Yesterday, the International Monetary Fund (IMF) warned of a growing risk of global recession and said inflation remained a continuing problem.
The Bretton-Wood institution, therefore, downgraded its 2023 world economic outlook, citing Russia’s ongoing war against Ukraine, widespread inflationary pressures, and higher interest rates boosting borrowing rates for both businesses and consumers.
The 190-nation lending agency said it expects a 2.7 per cent global growth rate next year, down from the 2.9 per cent it projected in July. The IMF left its 2022 prediction unchanged, a modest 3.2 per cent figure that would be only slightly more than half of last year’s 6 per cent growth.
Aside from the peak of the COVID-19 pandemic in 2020, the IMF said it is “the weakest growth profile since 2001. The worst is yet to come, and for many people, 2023 will feel like a recession.”
More than a third of the global economy will see two consecutive quarters of negative growth in the coming year, the IMF predicted.
The downturn in the IMF forecast was no surprise. Growth is slowing in the world’s two biggest economies, the United States and China, while key economies in Europe are also facing economic headwinds.
Fears of a further hit to demand in China also weighed. Authorities have stepped up coronavirus testing in Shanghai, and other large cities as COVID-19 infections rise again.
Prices also came under pressure from a strong US Dollar, which hit multi-year highs on worries about interest rate increases and escalation of the Ukraine war.
A strong American Dollar makes oil more expensive for buyers with other currencies and tends to weigh on risk appetite.
Losses were limited, however, by a tight market and last week’s decision by the Organisation of the Petroleum Exporting Countries (OPEC) and allies, including Russia, together known as OPEC+, to lower their output target by 2 million barrels per day.
US President Joe Biden is re-evaluating the country’s relationship with Saudi Arabia after OPEC+ announced last week it would cut oil production.
US lawmakers are also considering passing legislation that would target OPEC on the grounds of the oil group breaching antitrust legislation, potentially even reviving the NOPEC legislation from earlier years, removing US troops stationed in Saudi Arabia and UAE, and cutting arms supplies.
US crude oil stockpiles were expected to have risen last week after falling the prior two weeks.
