- Oil prices fell yesterday on concerns over a probable global recession.
- US manufacturing continued to decline in December, affecting oil prices.
- In anticipation of weak local demand, the Chinese government boosted export quotas for refined oil products.
After two days of severe losses in oil prices, investors came out to buy dips on Thursday amid a weaker dollar, but economic worries restrained the recovery.
Concerns over a probable global recession drove significant drops in the previous two days, particularly because the world’s two largest oil consumers, the United States and China, reported weak short-term economic indicators.
According to Jun Rong Yeap, market strategist at IG, “Coming off the strong sell-off, it looks like oil prices are trying to draw on some weakness in the US dollar this morning for some reprieve.”
“The second month of contraction in US manufacturing PMI suggests a continuous slowdown in economic activities, which may cause purchasers to flee the market.”
US manufacturing continued to decline in December, affecting oil prices. The manufacturing ISM purchasing managers’ index (PMI) went down for a second consecutive month to 48.4 from 49.0. The Institute for Supply Management (ISM) said it was the lowest number since May 2020.
As it fights inflation, the Federal Reserve is raising interest rates at their quickest pace since the 1980s, reducing demand for commodities normally purchased with credit. As the country transitions to a post-pandemic era, Americans are moving their spending away from products and toward services.
At the same time, the US Labor Department’s poll revealed that job vacancies had decreased less than anticipated, which increased worries that the Federal Reserve would use the labor market’s tightness to maintain higher interest rates for longer.
Worries about economic disruption as COVID-19 moves through China, the biggest importer of oil in the world, have exacerbated the uncertainty around crude prices.
In anticipation of weak local demand, the Chinese government boosted export quotas for refined oil products in the first batch for 2023.
The quotas might motivate refineries in the top crude importer in the world to process more crude and maintain record fuel export levels in the first half. It will reduce the impact of potential reductions in Russian diesel shipments when European Union sanctions go into force in February.
In the meantime, a weaker dollar boosts oil prices since it usually increases demand as goods priced in dollars become more affordable for holders of other currencies.
