Oil prices extended losses on Wednesday due to concerns about lower demand for crude stemming from signs of a global recession and China’s growing COVID-19 cases.
March contract Brent crude futures fell 2.2% to $80.22 per barrel, while the US West Texas Intermediate (WTI) slipped 2.1% to $75.25 per barrel.
The two benchmarks posted a loss of over 4% in the previous session, with the global benchmark hitting its single-day loss in more than three months.
However, oil prices gained some footing as the greenback declined on Wednesday after a significant climb the prior day.
Recession Fears, COVID Cases, and Fed Keeping Pressure
Market analyst Yeap Jun Rong stated that oil price gains were limited overnight on warning signs of a recession, China’s slow recovery from rising COVID cases, the US dollar’s recent surge, and weaker risk sentiment.
In addition, China has raised its fuel export quotas by 46% for this year’s first batch, signaling the possibility of lackluster demand in the country.
The market remained concerned over the impact of macro factors such as the downward economic pressure, according to analysts at Hong Kong-based brokerage firm.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva has warned that the global economy would face a tough year in 2023 as key growth drivers US, Europe, and China, all saw a slump in activity.
Furthermore, the Federal Reserve increased interest rates by 50 basis points (bps) in December following four straight meetings where it raised rates by 75 bps each. Should the central bank become aggressive with rate hikes, the move could disrupt the economy’s momentum and curb fuel consumption.
The focus will now be on the American Petroleum Institute’s (API) US crude inventory data set to be released later Wednesday. The Energy Information Administration (EIA) is due to follow with the release of its own data on Thursday.