China's Covid Woes Plus U.S. Stockpile Build Result In Further Losses For Oil

Analysts again debated where the oil market is heading in 2023: File Image/Pixabay

Oil prices on Thursday continued their downward trajectory, albeit modestly, as traders feared that rising Covid cases in China would, like the earlier lockdowns, stifle demand in that part of the world.

After it was perceived that the U.S. requiring airline passengers from China to show negative virus tests would be a short-term impediment to demand recovery, West Texas Intermediate declined 0.7 percent to settle at $78.40 per barrel.

Brent dipped 1.2 percent to $82.26 per barrel.

Thursday's gloomy sentiments weren't helped by the Energy Information Administration, which reported a surprise build in U.S. crude stocks and distillate inventories: to the tune of 718,000 barrels in the week ended Dec. 23 to 419 million barrels for crude, and a 0.3 percent rise in the week to 120.2 million barrels for distillates.

All but ignored was a 3.1 million barrel plunge in gasoline stocks compared with expectations for a 0.5 million barrel rise, a solid sign that demand remained resilient against all odds.

Craig Erlam, senior market analyst at Oanda, remarked, "Volatility is likely going nowhere fast as we navigate another highly uncertain year, albeit one that surely promises plenty of surprises and twists and turns along the way."

As usual, there was no end of bearish and bullish analysts on Thursday voicing their predictions of the oil market in the New Year: a prime example of the latter was hedge fund trader Pierre Andurand, who told Bloomberg that if the world finally rids itself of Covid restrictions in 2023, global oil demand could surge as much as 4 percent.

Andurand was reluctant to predict a bigger rise, noting that electric vehicles currently displace about 600,000 barrels per day (bpd) of fuel use and their popularity is growing.

Voicing the bearish side of forecasts, Gary Ross, analyst at Black Gold Investors, said that oil market balances are "weak" and will deteriorate further in early 2023 due to U.S. storms forcing closures of refinery operations.

In other oil related news on Thursday, Bloomberg reported on the continuing saga of the European Union attempting to punish Russia for its invasion of Ukraine with sanctions, with Germany and Poland's plan to stop buying Russian oil unfolding unsteadily.

The news agency stated, "Germany, Europe's top buyer of Russian crude until the invasion of Ukraine, is seeking replacement of some flows with supply from Kazakhstan in what looks a contorted logistical challenge….neighboring Poland appears set to miss its deadline to halt — at least for a month or two."