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Oil Prices Dip as Growth Concerns and COVID-19 Crisis Loom

Oil prices dipped on Tuesday, signaling a sluggish start to 2023, as the International Monetary Fund (IMF) warned of a global recession and increased concerns over China's COVID-19 crisis sparked uncertainty over demand.

Gasoline pump
Gasoline pump

IMF Managing Director Kristalina Georgieva warned that at least a third of the world would experience a recession in 2023, with major economies seeing their growth slow significantly. Chinese President Xi Jinping also struck a more cautious tone than markets anticipated in his New Year's address, citing additional challenges as the country enters a new phase of its COVID-19 response. This comes after Beijing began easing anti-COVID measures in December, resulting in a surge of infections likely to delay a full reopening this year. As a result, Brent oil futures fell 0.8% to $85.34 a barrel, and West Texas Intermediate crude futures fell 0.7% to $79.72 a barrel.

Crude Prices End 2022 on High Note, Despite Growth Concerns

Despite the soft start to 2023, crude prices ended 2022 on a high note as markets bet on rising demand and tighter supplies in the new year. This optimism was fueled by the prospect of China reopening from COVID-19 restrictions and the possibility of further western sanctions for Russia. In addition, crude markets were buoyed by the prospect of tightening global supply after Russia announced plans to block exports to countries that abide by recent U.S. and European price caps on the country's oil shipments. Weakness in the dollar also supported crude markets as markets priced in the possibility of smaller interest rate hikes by the Federal Reserve in 2023. As a result, Brent oil futures gained 8.3%, and West Texas Intermediate crude futures gained 4.5% in 2022.