Oil’s rough start to the year worsened as thin liquidity heightens volatility and China’s Covid cases increase, overshadowing, for now, the country’s reopening efforts.
(Bloomberg) — Oil’s rough start to the year worsened as thin liquidity heightens volatility and China’s Covid cases increase, overshadowing, for now, the country’s reopening efforts.
West Texas Intermediate fell as much as 5.3% to trade below $73 a barrel. The plunge has come despite news that China’s policymakers have made it a priority to boost economic consumption in 2023. The move would benefit crude and energy markets as China is the top crude importing country.
Yet, low liquidity in markets and a rising death toll in China — with warnings of more casualties heading into the Lunar New Year — have hampered the commodity’s strength. Traders flagged that the front month-spread deepening into contango reflects the market’s softness.
“The disconnect between how forward looking assets like energy equities anticipated a China recovery does not translate to immediate crude strength as there is a lot near-term risk to demand before we see recovery take hold,” said Rebecca Babin.
Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year.
A pre-holiday freeze that hobbled refinery capacity in some parts of the US has lowered crude processing capacity in North America and is also weighing on prices.
“There’s a few more weeks of softness I would think,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview.
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