Oil falls on concerns of faltering economic growth to hit demand

Oil falls on concerns of faltering economic growth to hit demand

Oil prices fell in early trading on Wednesday over concerns that oil demand growth will fall as major economies suffer through inflation and supply chain issues but surging prices for power generation fuel such as coal and natural gas limited losses.

Brent crude futures fell 24 cents, or 0.2%, to $83.18 a barrel at 0830 GMT. U.S. West Texas Intermediate (WTI) crude futures fell 23 cents or 0.2% to $80.41 a barrel.

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Both contracts pared losses after falling as much as 70 cents earlier when China, the world’s biggest crude importer, released data showing September imports fell 15% from a year earlier. However, China, along with Europe and India, remains mired in coal and natural gas shortages that have pushed up prices for electricity generation fuels.

“The data is backward looking, but China’s energy shortages are very real in real-time,” Jeffrey Halley, a senior analyst at brokerage OANDA said.

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“It will take a material fall in natural gas and coal prices to cap oil prices.”

China’s thermal coal prices surged to record highs on Wednesday as recent floods in key coal-producing province Shanxi worsened a supply crunch, just as new efforts by Beijing to liberalise power prices boosted demand from power generators.

“China is likely to buy more (crude oil) in the coming months as it seeks to resolve its energy crisis in any way possible and diesel may provide some relief on that,” said Howie Lee, an economist at Singapore’s OCBC bank.

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Still, the International Monetary Fund on Tuesday cut its growth outlook for the United States and other major economies on worries supply chain disruptions and cost pressures are holding back a global economic recovery from the coronavirus pandemic.

A strong U.S. dollar, trading near a one-year high, also weighed on oil prices, as it makes oil more expensive for those holding other currencies.

However, oil watchers are still focused on whether soaring gas and coal prices will lead to more demand for oil products for power generation.

“There are growing expectations that the high prices for gas and thermal coal are likely to boost demand for alternative fuels such as diesel and fuel oil,” ANZ Research analysts said in a note.

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The market is also awaiting U.S. oil inventory data, delayed by a day following the Columbus Day holiday on Monday.

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