Oil Declines With Focus On Stronger Dollar And China Outlook
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(Bloomberg) -- Oil declined under pressure by a stronger dollar, even as traders weighed the outlook for China as the world’s largest crude importer reopens its economy.
West Texas Intermediate futures dropped as much as 1.8% to below $79 a barrel, giving up earlier gains. Global benchmark Brent also fell. The dollar rallied 0.9% to the day’s high, making commodities priced in the currency less attractive.
In China, official data showed the economy ended the year in a major slump, and President Xi Jinping said that tough challenges remain. However, some measures of mobility in key urban areas have picked up in a sign that a wave of Covid infections may have peaked.
There are some signs traders have grown more optimistic about the market in recent days. Last week, money managers boosted net-bullish bets on Brent benchmark by the most since July 2021.
“The dollar jumped on the first real trading day of the year, which should limit a further rise in oil prices,” said Jens Pedersen a senior analyst at Danske Bank.
Crude eked out a small gain in 2022 in a year that was marked by huge volatility. Prices surged in the wake of Russia’s invasion of Ukraine, only to lose ground amid concerns about a global recession. In the new year, investors are tracking Russia’s reaction to sanctions on its energy exports, the odds the Organization of Petroleum Exporting Countries and allies may cut supply again, and the fallout in China from its swift pivot away from Covid Zero.
Hedge fund trader Pierre Andurand has been among those forecasting a surge in oil demand if the world fully emerges from Covid restrictions. Consumption has been lagging long-term trends and may rise by 3 million to 4 million barrels a day in 2023, he said last week.
On Tuesday, WTI briefly traded above its 50-day moving average for the first time since November. A sustained move beyond that level could spur technical buying, though prices have subsequent slipped away from that marker.
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