Global benchmark Brent crude futures dropped 52 cents, or 0.7%, to $77.77 a barrel, and U.S. WTI crude futures dropped 56 cents, or 0.8%, to $71.85 a barrel
Oil dropped on Wednesday as economic growth in China, the world’s second-biggest 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 dropped 52 cents, or 0.7%, to $77.77 a barrel by 0432 GMT. U.S. WTI crude futures dropped 56 cents, or 0.8%, to $71.85 a barrel.
Brent crude gained marginally on Tuesday while WTI dropped as investors saw fundamentals weakening in the U.S. but the ongoing conflicts in the Red Sea raised 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 rose 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 “does not 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 strong and will likely reach record levels in 2024, she added.
Despite the less-than-expected economic growth, China’s oil refinery throughput in 2023 increased 9.3% from a year earlier to a record, suggesting the country’s oil demand is higher if not at the pace that some analysts are expecting.
Some indications 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 expectation of stronger demand in the second half of 2024.
In addition, the U.S. dollar stayed near a one-month high on Wednesday after comments from U.S. Fed officials lowered expectations for aggressive interest rate reductions. The stronger dollar lowers 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 added.
The market continues to monitor the Red Sea situation though investors seem to be downplaying the threat of supply disruptions even as oil tankers are diverting their courses away from the waterway.
