Oil Sinks Again As Monetary Experts Forecast All-Out Recession In 2023

Meanwhile, China's unwavering Covid policy heralds a further erosion in demand: File Image/Pixabay

A second session of slumping oil prices on Tuesday corresponded with deepening fears of a global economic slowdown, stoked by Wall Street experts predicting an outright recession in the New Year.

Presumably to the frustrations of the Organization of the Petroleum Exporting Countries (OPEC), who had hoped its 2 million barrels per day (bpd) output cut would cause a price rise and benefit its members, West Texas Intermediate dropped $1.78 to settle at $89.35 per barrel; Brent fell $1.90 to $94.29 per barrel.

Jamie Dimon, chief executive officer at JPMorgan Chase & Co., told media that the U.S. and global economies are likely to sink into recession next year, and the International Monetary Fund and World Bank also acknowledged rising risks of a slowdown.

The IMF downgraded its forecast for 2.9 percent global growth in 2023, citing the shocks caused by the pandemic lockdowns and Russia's invasion of Ukraine.

Bart Melek, head of commodity strategy at TD Securities, said, "The lack of risk appetite and technical moves look to be responsible for driving crude lower after a few very bullish sessions in the aftermath of the OPEC+ quota cut announcement."

Demand outlook was also muddied by authorities in China indicating there will be no deviation of the nation's zero Covid infection policy despite the policy widely considered unattainable and the virus being at the severity level of the common flu.

In a commentary in the communist party's flagship newspaper, the policy was defended as protecting lives and stabilizing the economy, even though the latest lockdowns crippled business for the world's largest crude importer.

John Kilduff, founding partner at Again Capital, remarked, "From an economic perspective, it seems like China is throwing the baby out with the bathwater by continuing to lock down its population to lower case."

It fell upon Daily FX to address the elephant in the room on Tuesday, namely the supply-demand imbalance in the wake of the OPEC's 2 million bpd production cut: "Deteriorating supply ahead of the winter months in the northern hemisphere, especially as Europe stares down an energy crisis, are likely to provide a meaningful cushion under crude oil prices for the foreseeable future."