Oil fell on Wednesday as economic growth in China, the world's second-largest crude user, slightly missed expectations, raising concerns about future demand increases while U.S. dollar strength dented investor's risk appetite.
Global benchmark Brent crude futures fell 52 cents, or 0.7%,
to $77.77 a barrel by 0432 GMT. U.S. West Texas Intermediate crude futures
(WTI) fell 56 cents, or 0.8%, to $71.85 a barrel.
Brent crude rose slightly on Tuesday while WTI fell as
investors saw fundamentals weakening in the U.S. but the ongoing naval and air
conflicts in the Red Sea increased concerns of tankers having to reroute to
avoid the area, increasing costs and the amount of time for deliveries.
China's economy in the fourth quarter expanded by 5.2% from
a year earlier, which missed analyst expectations and calls into question
forecasts that Chinese demand will propel stronger global oil growth in 2024.
The Chinese economic growth figure "doesn’t end the
headwinds over crude oil demand, the Chinese outlook for 2024 and 2025 is still
bleak," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
"(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 the less-than-expected economic growth, China’s oil
refinery throughput in 2023 rose 9.3% from a year earlier to a record,
indicating the country’s oil demand is elevated if not at the pace that some
analysts are expecting.
Some signs of steady Chinese demand have appeared as the
country’s refiners are actively booking oil cargoes for delivery in March and
April to replenish stockpiles, lock-in relatively lower prices and in
anticipation of stronger demand in the second half of 2024.
Additionally, the U.S. dollar hovered near a one-month high
on Wednesday after comments from U.S. Federal Reserve officials lowered
expectations for aggressive interest rate cuts. The stronger greenback reduces
demand for dollar-denominated oil for buyers paying with 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," Sachdeva said.
The market continues to monitor the Red Sea situation though
investor appear to be downplaying the threat of supply disruptions even as oil
tankers are diverting their courses away from the waterway.
The U.S. on Tuesday mounted fresh strikes against
Iran-aligned Houthi militants in Yemen after a Houthi missile hit a Greek
vessel in the Red Sea.
"While oil benchmarks may not reflect the Red Sea attacks, the realised price for oil and oil products for consumers has increased given the disruption to trade flows through the Red Sea and Suez Canal," Vivek Dhar, director of mining and energy commodities strategist at the Commonwealth Bank of Australia, said in a note. - Reuters