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Oil prices crashed early on Wednesday, with Brent Crude falling below the $80 a barrel mark again, as concerns about immediate global oil demand intensified with soaring Covid cases in China and slowing economies globally.
As of 8:33 a.m. ET on Wednesday, the U.S. benchmark, WTI Crude, had plummeted below $75 per barrel and traded down by 2.68% at $74.91. The international benchmark, Brent Crude, dipped below $80 and the front-month contract was down by 2.70% at $79.92.
Oil prices continued on Wednesday the Tuesday rout when both benchmarks dipped by 4% and Brent plummeted the most in one day in more than three months. The recent sell-off in oil was the result of gloomy economic expectations from the International Monetary Fund (IMF) regarding the state of the Chinese and global economy in the early weeks of 2023, and a strong U.S. dollar.
Surging Covid cases in China and a slowdown in the Chinese economy are expected to weigh on oil demand and prices in the immediate term.
The Chinese economy is off to a difficult start to 2023, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), told the CBS program Face the Nation in an interview aired on Sunday. China’s re-opening and the surge in infections that followed is “bad news” for the global economy in the short term, Georgieva said.
The market is currently focused on a short-term deterioration in demand as China struggles with Covid-19, milder weather reduces demand for heating fuels, and the IMF’s latest warning that one-third of the world may suffer a recession in 2023, Saxo Bank said on Wednesday.
“In Brent, the uptrend from early December looks challenged with a break below $81 signalling further loss of momentum, initially towards $79.65,” the bank’s strategists said.
The most imminent catalyst for the direction of oil prices will come later on Wednesday when the American Petroleum Institute (API) will report its estimates of U.S. commercial oil inventories.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.