Oil prices fall to begin 2023 as China worries persist

Oil prices fall to begin 2023 as China worries persist

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Oil futures traded lower Tuesday to kick off the new year, reflecting continued worries that surging COVID-19 cases in China will crimp demand from one of the world’s largest energy consumers.

Traders were returning from a three-day weekend. U.S. and U.K. markets were closed Monday in observance of Sunday’s New Year’s Day holiday. The U.S. crude oil benchmark rose 6.7% in 2022, based on front-month contracts, according to Dow Jones Market data, while Brent crude, the global benchmark, rose 10.5%.

Price action
  • West Texas Intermediate crude for February delivery
    CL00,
    -1.30%

     
    CL.1,
    -1.30%

     
    CLG23,
    -1.30%

    fell 95 cents, or 1.2%, to $79.31 a barrel on the New York Mercantile Exchange.

  • March Brent crude
    BRN00,
    -1.36%

     
    BRNH23,
    -1.36%

    was down 97 cents, or 1.1%, at $84.94 a barrel on ICE Futures Europe.

  • February gasoline
    RBG23,
    -2.24%

    fell 1.9% to $2.431 a gallon, while February heating oil
    HOG23,
    -2.11%

    dropped 1.8% to $3.235 a gallon.

  • February natural gas
    NGG23,
    -9.74%

    dropped 8.6% to $4.091 per million British thermal units.

Market drivers

Crude oil ended 2022 on a positive note, rising in Friday’s session. Investors have weighed optimism over the lifting of China’s strict COVID curbs, which were seen keeping a lid on demand from one of the world’s largest energy consumers, versus concerns over soaring infections.

A private gauge of activity in China’s manufacturing sector released Tuesday was in contractionary territory for a fifth straight month in December, as waves of infections disrupted businesses and undercut demand. China’s Caixin manufacturing purchasing managers index dropped to 49.0 in December from 49.4 in November, according to data released Tuesday by Caixin Media Co. and S&P Global. A figure below 50 marks a contraction in activity.

The data moved in the same direction as China’s official manufacturing PMI, which fell more than expected, to 47.0, in December, the lowest level since February 2020.

“The December survey data out of China were uniformly downbeat. The plunge in the official services PMI points to a fall in oil demand, but we suspect that the hit to industrial activity (and metals demand) has been more modest,” said Caroline Bain, chief commodities economist at Capital Economics, in a note.

“Looking ahead, we expect China’s commodity demand to remain soft in Q1 given the ongoing downturn in the property sector, the wave of virus infections and sluggish export demand,” she said.

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