Oil slides after IMF warns of tougher 2023

Oil prices slid on Tuesday from their highest levels in a month on a stronger US$ and after the head of the International Monetary Fund warned of a tougher 2023 as major economies experience weakening activity.

Brent crude futures dropped to US$84.93/barrel by 0148 GMT while US West Texas Intermediate crude (WTI) traded at US$79.49/barrel, after the US$ strengthened. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.

IMF Managing Director Kristalina Georgieva said on Sunday that the United States, Europe and China - the main engines of global growth - are all slowing down simultaneously, making 2023 tougher than 2022 for the global economy.

Still, oil prices settled more than 2% higher on Friday with Brent and WTI closing 2022 up 10.5% and 6.7%, respectively.

Commodities saw a substantial US$12.3 billion bullish flow in the week that ended on December 27, 2022 the single largest weekly bullish flow in 2022, Societe Generale analysts said in a January 03. 2023 note.

“The commodity with the largest flow was Brent, which saw a US$3.4 billion bullish flow as Russia outlined its response to the EU and G7 imposed price cap on the country's crude exports to third parties," the analysts said.

President Vladimir Putin banned the supply of crude and oil products from February 01, 2023 for five months to nations that abide by the cap in a decree, which also included a clause that allows for Putin to overrule the ban in special cases.

Russian crude has been diverted to India and China from Europe while Moscow planned to increase diesel exports from the Baltic Sea port of Primorsk to 1.81 million tons in January 2023. However, January oil products exports from Tuapse are expected to fall to 1.333 million tons, traders said.

A Reuters oil price poll showed that Brent prices are expected to average at US$89.37/barrel in 2023 while the average for WTI is at US$84.84 a barrel as global economic growth slows.

In China, the world's largest crude importer and second-largest oil consumer, some people in key cities braved the cold and a rise in COVID-19 infections to return to regular activity on Monday, raising the prospect of a boost to the economy and oil demand as more recover from infection.

 

Global economy faces tougher year 2023

For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe and China - all experience weakening activity, the Head of International Monetary Fund (IMF) said on Sunday.

The New Year is going to be "tougher than the year we leave behind," IMF Managing Director Kristalina Georgieva said on the CBS Sunday morning news program "Face the Nation."

"Why? Because the three big economies - the United States, European Union and China - are all slowing down simultaneously," she said.

In October 2022, the IMF had cut its outlook for global economic growth for 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high interest rates engineered by central banks like the US Federal Reserve aimed at bringing those price pressures to heel.

Since then, China has scrapped its zero-COVID policy and embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge. In his first public comments since the change in policy, President Xi Jinping on Saturday called in a New Year's address for more effort and unity as China enters a "new phase."

"For the first time in 40 years, China's growth in 2022 is likely to be at or below global growth," Georgieva said.

Moreover, a "bushfire" of expected COVID infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth, said Georgieva, who traveled to China on IMF business late last month.

"I was in China last week, in a bubble in a city where there is zero COVID," she said. "But that is not going to last once people start traveling."

"For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative," she said.

In October's forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2% - on par with the fund's global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4% while global activity slowed further.

Her comments, suggest another cut to both the China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.