LONDON, Jan 3 (Reuters) – Oil prices fell slightly on Tuesday in volatile trade as data on weak demand from China, a bleak economic outlook and a stronger U.S. dollar weighed.
Brent crude futures fell $1.07, or 1.25%, to $84.84 a barrel at 2:47 p.m. GMT. U.S. West Texas Intermediate crude fell $1.15, or 1.43%, to $79.11, after losing more than $2 earlier in the session.
Both contracts had risen more than $1 in early trade.
“Brent and WTI have recovered nearly 15% from lows of a few weeks ago as traders continue to assess stronger Chinese demand,” said Craig Erlam, senior market analyst at OANDA.
“The outlook remains very uncertain, however, which should ensure that oil prices remain highly volatile.”
The Chinese government has raised export quotas for refined petroleum products in the first batch for 2023. Traders attributed the increase to expectations of weak domestic demand as the world’s biggest importer of crude continues to battle waves of COVID-19 infections.
In other bearish news, Chinese factory activity declined in December as surging COVID-19 infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs.
Adding to the gloomy economic outlook, IMF Managing Director Kristalina Georgieva said on Sunday that the United States, Europe and China – the main engines of global growth – were all slowing down simultaneously, making 2023 more difficult than 2022 for the world economy.
Prices are also under pressure from a stronger dollar, which makes commodities denominated in dollars more expensive for holders of other currencies and tends to weigh on demand.
The market will be awaiting guidance from the US Fed’s December monetary policy meeting on Wednesday. The Fed raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.
Also on the radar, December jobs data from the US is due Friday, which should show that the labor market remains tight.
Looking ahead, Commerzbank said it expects the global economic outlook to play a “much larger role” in oil price developments than production decisions made by the Organization of Countries. Oil Exporters (OPEC) and its allies, a group known collectively as OPEC+.
The bank expects signs of economic recovery “in key economic areas” to bring Brent back towards $100 a barrel, which it says could happen from the second quarter of the year.
Reporting by Rowena Edwards Additional reporting by Florence Tan and Trixie Yap in Singapore Editing by David Evans and David Goodman
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