By Peter Nurse
Investing.com — Oil prices fell Thursday, retreating from a three-week high, weighed by weak Chinese economic data and a stronger dollar, dimming the outlook for demand growth.
By 09:10 ET (13:10 GMT), futures traded 1.5% lower at $88.64 a barrel, while the contract fell 1.1% to $95.06.
China’s services activity contracted again in October, with the falling to the lowest level since May, as COVID-19 containment measures hit businesses and consumption.
This economic weakness raises concerns about a pickup in demand by China, the largest importer of crude in the world, particularly given doubts about the report indicating that Chinese health regulators were considering ending the country’s Zero-Covid policy earlier in the week.
A statement from the National Health Committee dismissed suggestions that this is going to be relaxed any time soon, saying: “We must as ever pay close attention to control of the Covid-19 pandemic and absolutely not in the least waver from the overall strategy of preventing the virus from entering from without, and from rebounding within.”
Adding to the negative tone was strength in the , which surged to a two-week high, after the Federal Reserve’s latest and comments from Chair Jerome Powell that interest rates will have to go higher than previously thought.
A strong greenback reduces demand for dollar-denominated commodities, like oil, by making it more expensive for foreign buyers, while the continued aggressive monetary tightening by the Fed makes an economic slowdown at the largest economy in the world, and biggest consumer of oil, more likely.
The followed suit Thursday, raising interest rates by 75 basis points, its largest hike since 1989, while warning of a “very challenging outlook” for the economy.
The BoE estimates that Britain’s economy entered a recession in the third quarter and that the recession will last until the middle of 2024, causing the economy to shrink by 2.9%.
The U.K. authorities are also preparing to raise around 40 billion pounds ($45 billion) over the next five years through an extension of windfall taxes on oil & gas firms, according to a report in The Times newspaper.
The oil markets had rallied on Wednesday, with the benchmarks climbing to their highest levels since Oct. 10, as official data showed a bigger-than-expected draw in U.S. of 3.115 million barrels during the week ended Oct. 28.
“The drawdown in the SPR last week was the smallest since February. It would appear that we are starting to see larger draws in commercial crude oil inventories as the amount of crude released from the SPR is reduced,” analysts at ING said, in a note.
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