By Irina Slav – Jan 05, 2023 1:45 am CST
- Both Brent and WTI started the year down 9% in just two days, boosted by troubling economic news and a warmer-than-usual winter.
- The IMF expects a third of the world’s economies to fall into recession in 2023, while the US PMI was lower than expected in December.
- While oil prices recovered early Thursday morning, economic fears and rising covid cases in China mean upside for oil is limited
After a sharp decline in the first trading days of the new year, oil prices are on the rise again, but upside potential remains limited in light of recent economic news and a warmer-than-usual Northern Hemisphere winter.
After collapsing from over $82 a barrel to around $78, Brent crude oil is recovering today, nearing $79, and West Texas Intermediate is moving up to $74. However, the economic outlook is quite bearish.
First, earlier this week the head of the International Monetary Fund said he expects a third of the world’s economies to fall into recession this year. This immediately weighed on prices and will continue to depress them in the absence of any evidence to the contrary.
The December reading of the US Purchasing Managers’ Index then came in lower than expected at 48.4 versus an expected 48.5. Despite the small difference, it was enough to deepen the economic gloom that characterized expectations of weaker oil demand, not least because it was the second straight month of declines.
Meanwhile, Covid infections are on the rise in China and worries abound that this will slow the recovery of global economic strength despite the government’s U-turn on its zero-Covid policy.
“While reliable data seems hard to come by, the view seems to be that there will be significant disruption in the coming months and then a recovery from around the middle of the year, which should then boost demand,” Oanda senior analyst Craig Erlam told AFP.
A weaker dollar also helped lift oil prices earlier today, as did traders who bought the declines of the past two trading sessions, Reuters noted in a report earlier in the day.
Brent and WTI lost a combined 9% in the first two trading days of 2023, the report also noted, which was the biggest two-day trading loss at the start of a new year since 1991.
By Irina Slav for Oilprice.com
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