Oil sinks over 8% in 2 days to below $79, biggest one-day loss in 3 months

Oil fell sharply on Wednesday after slumping in the previous session, weighed down by concerns about weak demand due to the state of the global economy and China’s rising Covid cases.

Brent futures fell $3.70 to $78.40 a barrel, a 2.9 per cent loss. US crude dropped 3.5 per cent, to $73.36 per barrel. Both benchmarks plunged more than 4 per cent on Tuesday, with Brent suffering its biggest one-day loss in more than three months.

“Worries about the state of the global economy are front and centre of traders’ minds and will remain so for the foreseeable future,” PVM Oil analyst Stephen Brennock said.

The Chinese government also increased export quotas for refined oil products in the first batch for 2023, signalling expectations of poor domestic demand. Top oil exporter Saudi Arabia may further cut the prices for its flagship Arab Light crude grade to Asia in February, after they were set at a 10-month low for this month, as concerns of oversupply continued to cloud the market.

The head of the International Monetary Fund warned that much of the global economy would see a tough year in 2023 as the main engines of global growth — the United States, Europe and China - were all experience weakening activity. The Fed also raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each. If the Fed intensifies its rate hikes, that could slow the economy and hamper fuel consumption.

Lending oil some support, the dollar weakened on Wednesday after posting big gains in the previous session. A weaker dollar typically boosts demand for oil as dollar-denominated commodities become cheaper for holders of other currencies.

US crude oil stockpiles likely rose 2.2 million barrels, with distillate inventories expected down, a preliminary Reuters poll showed on Monday.

Gas plunge means cash for Sunak, but no relief yet for consumers

UK government subsidies for household energy bills are expected to plunge from current levels with a slump in wholesale prices but it will be months before consumers feel the benefit.

By July, energy tariffs are poised to fall below the government’s energy price guarantee for the first time since it was rolled out in October. Support may fall to £3 billion ($3.62 billion) in the fiscal year that begins in April, from £25 billion during the current period, according to estimates by Investec. The price cap is adjusted every three months and the next level, due to start in April, will reflect higher prices in November and December meaning some government support is still necessary.

Record high prices forced the government to augment support for consumers beyond the regulator’s energy price cap that has been in place since 2017 to limit the maximum charges on an average bill.
Bloomberg

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