Crude oil sharply lower; global recession fears weigh

By Peter Nurse   

Investing.com -- Oil prices fell sharply Wednesday, continuing the previous session’s selloff on concerns a global recession in 2023 will severely weigh on crude demand.

By 09:35 ET (14:35 GMT), U.S. crude futures traded 3.1% lower at $74.56 a barrel, while the Brent contract fell 3.2% to $79.47 a barrel. 

Both benchmarks plunged more than 4% on Tuesday, with Brent suffering its biggest one-day loss in more than three months.

Traders remain concerned about future global economic activity, particularly after International Monetary Fund Managing Director Kristalina Georgieva warned earlier this week that the global economy faces “a tough year, tougher than the year we leave behind.”

Data released earlier Wednesday showed Eurozone business activity contracted less than initially thought at the end of last year, as the region’s final composite Purchasing Managers' Index rose to 49.3 in December from November's 47.8. 

This, however, was still below the 50 mark separating growth from contraction, which the index has been since July.

The market continues to look at the reopening of the Chinese economy following a year of strict COVID restrictions on activity, for a potential jump in demand from the world’s largest importer of crude.

“The weakness in the market comes despite the China reopening story, which should be constructive for the demand outlook in the medium to longer term,” said analysts at ING, in a note. “Although admittedly, rising Chinese covid infections could weigh on demand in the immediate term.”  

President Xi Jinping recently stated that China’s economy grew 4.4% in 2022, greater growth than had been expected, but he also noted that the country faces increased headwinds from the COVID-19 pandemic in the coming months.

On the supply side, preliminary OPEC production numbers are starting to come through, and a survey from Bloomberg estimated that the group’s output in December averaged 29.14 million barrels a day, up 150,000 barrels a day month on month. 

“The increase was largely driven by a recovery in output from Nigeria, where production increased by 150Mbbls/d to 1.35MMbbls/d. There were marginal changes amongst other OPEC members,” said ING.

Additionally, the industry group American Petroleum Institute is scheduled to release weekly data on U.S. crude inventories later in the session, a day later than usual following Monday’s holiday.