Oil fell by more than $1 on Wednesday due to investors’ risk aversion being dampened by the strengthening of the U.S. dollar and China’s economic growth falling slightly short of expectations, raising concerns about future demand. Oil falls as China’s economic recovery disappoints and the currency advances.
At 14:28 GMT, Brent crude futures decreased $1.38, or 1.8%, to $76.91 per barrel. Futures for West Texas Intermediate crude (WTI) in the United States decreased 1.9%, or $1.35, to $71.05.
Read more: As the Houthis step up their attacks in the Red Sea, a missile strikes a Greek vessel.
Even the naval and air conflicts in the Red Sea, which have caused tankers to halt or reroute, thereby increasing shipping costs and delaying deliveries, have not been sufficient to sustain oil production.
The annual growth rate of 5.2% for China’s economy in the fourth quarter fell short of analysts’ expectations and cast doubt on predictions that Chinese demand will drive global crude production through 2024.
“Economic data does not alleviate the headwinds over crude oil demand; the Chinese outlook for 2024 and 2025 remains bleak,” said Phillip Nova, senior market analyst Priyanka Sachdeva.
“(The) oil industry was backing the notion that, despite a bumpy recovery, oil demand from China has been resilient and will likely reach record levels in 2024.”
Despite this, China’s oil refinery throughput reached a record high of 9.3% in 2023, suggesting heightened demand despite falling short of some analysts’ forecasts.
Other indications of China’s consistent demand have also surfaced.
An optimistic OPEC also predicted relatively robust growth in global oil demand in 2024. It stated on Wednesday that China and the Middle East will lead a “robust” increase in oil consumption in 2025.
In addition, on Wednesday, the U.S. dollar remained near its highest level in over a month due to remarks made by Federal Reserve officials that diminished anticipations of substantial reductions in interest rates. A purchaser’s demand for dollar-denominated oil is reduced when the dollar strengthens against other currencies.
“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,” according to Sachdeva.
IIR Energy, a research firm, predicted on Wednesday that oil refiners in the United States will have 1.5 million barrels per day (bpd) of inactive capacity for the week ending January 19, reducing available refining capacity by 954,000 bpd.
After a Houthi missile struck a Greek vessel on Tuesday and the United States launched additional strikes against Houthi militants in Yemen, who are aligned with Iran, tensions remained elevated in the Red Sea.
“Although oil benchmarks may not reflect the disruptions to trade flows through the Red Sea and Suez Canal, the realized price for oil and oil products for consumers has increased,” Commonwealth Bank of Australia mining and energy commodities strategist Vivek Dhar wrote in a note.