Oil fell above one dollar on Wednesday due to the economic growth in China the world’s second-largest crude user.
There were slightly missed expectations, raising concerns about future demand, while U.S. dollar strength dented investor’s risk appetite.
Brent crude futures fell 1.26 dollars (1.6 per cent) to 77.03 dollars per barrel by 1158 GMT. U.S. West Texas Intermediate crude futures (WTI) were down 1.35 dollars (1.9 per cent) at 71.05 dollars.
Even the ongoing naval and air conflicts on the Red Sea were not enough to support oil.
Regardless of the concerns, tankers have to pause or reroute, increasing shipping costs and slowing down deliveries.
In the fourth quarter, China’s economy expanded by 5.2 per cent year-on-year, missing analysts’ expectations and calling into question forecasts that saw Chinese demand fuelling 2024 global oil growth.
Priyanka Sachdeva, a senior market analyst at Phillip Nova reported that the economic data “doesn’t end the headwinds over crude oil demand, the Chinese outlook for 2024 and 2025 is still bleak,”
The oil industry-backed the notion that despite a bumpy recovery, oil demand from China has been resilient and will likely reach record levels in 2024.
Still, China’s oil refinery rose 9.3 percent to a record high throughout 2023, indicating elevated demand though it lagged some analysts’ expectations.
Other signs of steady Chinese demand appeared.
Additionally, the U.S. dollar hovered near a one-month high on Wednesday after comments from Federal Reserve officials lowered expectations for aggressive interest rate cuts. A stronger dollar reduced the demand for dollar-denominated oil from buyers using other currencies.
Sachdeva said, “Higher rates can lead to a weaker outlook for oil demand as economic activity tends to cool in a high interest rate environment, leaving oil prices vulnerable.”
In the U.S. oil refiners are expected to likewise have 1.5 million barrels per day (bpd) of capacity offline for the week ending Jan. 19.
Research company IIR Energy said on Wednesday that there was a decrease in the available refining capacity by 954,000 barrels per day.
In the Red Sea, tensions remained high as the U.S. on Tuesday mounted fresh strikes against Iran-aligned Houthi militants in Yemen after a Houthi missile hit a Greek vessel.
Vivek Dhar, mining and energy commodities strategist at the Commonwealth Bank of Australia, wrote in a note, “While oil benchmarks may not reflect the Red Sea attacks, the realised price for oil and oil products for consumers had increased given the disruption to trade flows through the Red Sea and Suez Canal,”