Oil plunges 3.5% as trade rattles on concerns over China and the global economy

HOUSTON, Jan 3 (Reuters) – Oil prices fell 3.5% in volatile trade on Tuesday, under pressure from weak Chinese demand, a lackluster economic outlook and a stronger U.S. dollar.

Brent crude futures for March delivery fell $3.03 to $82.88 a barrel, as of 11:45 a.m. ET (4:45 p.m. GMT). U.S. crude fell $2.81 to $77.45 a barrel.

At the start of trading, both contracts had risen more than $1 a barrel.

“There are plenty of reasons to be concerned here – the COVID-19 situation in China and the fear of a recession in the foreseeable future is putting pressure on the markets,” said the Mizuho analyst, ​​Robert Yawger.

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

Another concern: Chinese factory activity declined in December as surging infections disrupted production and weighed on demand after Beijing largely lifted anti-virus restrictions.

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

The dollar, meanwhile, was heading for its biggest one-day rise in more than three months . A stronger dollar can dampen demand for oil, making the dollar-denominated commodity more expensive for holders of other currencies.

On Wednesday, the market will scan the minutes from the US Fed’s December monetary 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, December payroll data in the United States is due Friday. Analysts expect the data to show the labor market remains tight.

Commerzbank said it expects the global economic outlook to play a “much larger 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 economic recovery “in key economic areas” to bring Brent back towards $100 a barrel, which it says could happen from the second quarter of the year.

“The outlook remains very uncertain, however, which should ensure 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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