Oil fell on Wednesday as economic growth in China, the world’s second-largest crude oil user, disappointed, raising concerns about demand and a strengthening U.S. dollar weakened investors’ risk appetite. China’s Q4 GDP increased by 5.2% compared to 5.3% in the surveys.
Global benchmark Brent crude futures were down 52 cents, or 0.7%, at $77.77 a barrel as of 04:32 GMT. West Texas Intermediate crude oil 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 weakening fundamentals in the United States, but ongoing naval and air clashes in the Red Sea have raised concerns that tankers will be forced to avoid the region, increasing costs and delivery times.
China’s economy grew by 5.2% in the fourth quarter compared to the previous year; This slightly missed analysts’ expectations and called into question predictions that Chinese demand would lead to stronger global oil growth in 2024.
The oil industry has been promoting the idea that despite a bumpy recovery, oil demand from China is resilient and will likely reach record levels in 2024. However, China’s economic growth figure has not ended the negative effects on crude oil demand, with China’s outlook for 2024 and 2025 still bleak.
Meanwhile, despite less-than-expected economic growth, China’s oil refinery output reached a record in 2023, up 9.3% from the previous year; This indicates that the country’s oil demand is increasing, although not at the pace some analysts expected.
There have also been some signs that Chinese demand is stable, with the country’s refiners actively booking oil cargoes for delivery in March and April to replenish stocks, lock in relatively low prices, and anticipate stronger demand in the second half of 2024.
Additionally, the US dollar hovered near a one-month high on Wednesday following comments from US Federal Reserve officials that dampened expectations for aggressive interest rate cuts. The strengthening dollar reduces the demand for dollar-denominated oil from buyers paying in other currencies.
Higher interest rates could lead to a weaker outlook for oil demand as economic activity tends to cool in a high-interest rate environment and oil prices become fragile.
On Tuesday, the United States launched new strikes against Iran-aligned Houthi militants in Yemen after the Houthis hit a Greek ship in the Red Sea.
Although oil benchmarks do not reflect the Red Sea battles, the realized price of oil and oil products for consumers increased due to disruption in trade flows through the Red Sea and Suez Canal.
The market continues to monitor the situation in the south Red Sea, But investors appear to be downplaying the threat of supply disruptions as oil tankers divert their routes away from the waterway.
