Oil Takes Another Plunge Despite China Rethinking Zero Tolerance Policy

Oil prices on Wednesday continued their downward trend, as economists and analysts took stock of what consumers have accepted for months now: that persistently high energy costs are weakening economic growth and could indeed lead to an all-out recession.

Indeed, Wednesday's losses were triggered by bigger-than-expected increases in U.S. fuel stocks: according to the Energy Information Administration, distillates posted a 6.2 million barrel build compared to estimates for a 2.2 million barrel rise.

Also, gasoline inventories climbed 5.3 million barrels compared to forecasts for a 2.7 million barrel increase.

This resulted in Brent falling $2.18, or 2.8 percent, to $77.17 per barrel, and West Texas Intermediate falling $2.24 to $72.01 per barrel.

The irony is that global circumstances could have easily warranted a price gain on Wednesday, with all-important China announcing the most sweeping changes to its anti-Covid lockdown policy regime since the pandemic began; also, data showed that the country's crude oil imports in November rose 12 percent from a year earlier to their highest in 10 months.

The new Covid rules include allowing infected people with mild symptoms to quarantine at home and dropping testing for people travelling domestically, which observers think are clear signs that Beijing is finally pivoting away from its draconian approach to combating the virus, letting people live with the disease, and committed to avoid ruining what is the world's second largest economy.

But fearful traders on Wednesday were far more concerned with warnings from U.S. banks that a recession in the New Year is likely: Jamie Dimon, chief executive of JPMorgan Chase & Co., said the economy is slowing down and inflation is eroding consumer spending power, and  "Those things might very well derail the economy and cause this mild to hard recession that people are worried about."

Dimon added that the Federal Reserve may pause for three to six months after raising benchmark interest rates to 5 percent, but that may "not be sufficient" to curb high inflation.

Capping the negative sentiment in energy circles on Wednesday was Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, who remarked, "There is literally no risk appetite to buy the dip in crude right now; this is just snowballing into outsize moves."