The crude oil continued a bleeding start to the year as it fell by as much as 5 per cent on Wednesday, weighed down by demand concerns stemming from the state of the global economy and rising COVID cases in China.
Brent futures fell by $4.07 or 4.9 per cent to $78.03 a barrel as the United States West Texas Intermediate (WTI) crude dropped $3.80 or 4.9 per cent, to $73.13 per barrel.
China’s COVID-19 cases continued to drag on oil prices as reports emerged that patients are being forced to wait in beds outside entrances and along corridors as hospitals continue to struggle with rising COVID-19 infections.
After a long-held zero-COVID policy, China has relaxed many of its strict coronavirus rules, and the disease has been spreading rapidly across the country.
This has been pegged to affect oil demand in the world’s largest oil importer.
Data from China showed that while no new variant has been found there, the country has under-represented how many people have died in its recent rapidly spreading outbreak, World Health Organisation (WHO) officials said.
The WHO says it is concerned about “risk to life” in China amid a surge in COVID cases, while in Europe and the US, the Omicron subvariant XBB.1.5 is spreading rapidly.
The state of the global economy and central bank rate hikes also weighed on crude prices.
In the world’s largest economy, US manufacturing contracted further in December, dropping for a second straight month to 48.4 points from 49.0 points in November, in the weakest reading since May 2020, the Institute for Supply Management (ISM) said.
Also, an improvement in jobs has raised concerns that the US Federal Reserve would use this as a rationale to keep rates higher for longer.
The Chinese government increased export quotas for refined oil products in the first batch for 2023, signalling expectations of poor domestic demand.
Top oil exporter Saudi Arabia could cut prices for its flagship Arab Light crude grade to Asia in February, having been set at a 10-month low for this month, as concerns about oversupply remain.