Open the door black! International oil prices fell 9% in the two days of the new year, and demand-side risks were rekindled

After two consecutive years of rise, international oil prices got off to a dismal start in 2023, with the two major international crude oil contracts falling nearly 9%
in two trading days.

As the pressure of the global economic slowdown continues, the shadow on the demand side seems to linger, while weather factors also become short-term bearish, further weighing on market sentiment
.
Next, the risk of a new supply-demand imbalance is seen as the trigger for continued oil price volatility
.

Expectations of an economic slowdown weigh on market sentiment

As the Federal Reserve and other major central banks are expected to continue tightening monetary policy this year, it has raised concerns about a global economic slowdown, which in turn has affected crude oil prices and overall market sentiment
.

International Monetary Fund Managing Director Kristalina Georgieva warned over the weekend that 2023 will be a difficult year for much of the world, with the United States and Europe experiencing weakness in economic activity
.

The Institute for Supply Management (ISM) manufacturing index fell to 48.
4 in December, the second consecutive month below the boom-and-bust line and its lowest level
since May 2020, according to the latest data.
Recession risks have risen as rising interest rates continue to weigh on U.
S.
consumer demand
.

The Fed's steadfastness in fighting inflation has fueled such fears
.
Minneapolis Fed President Neel Kashkari, who voted on this year's Federal Open Market Committee, said Wednesday that he expects the federal funds rate to rise to 5.
4 percent
.
"The Fed should continue to raise its policy rate until it is confident that inflation has peaked
.
" "If progress in reducing inflation is slow, the Fed may even have to push policy rates higher and should avoid premature rate
cuts," he wrote.
”

A number of institutions, including Goldman Sachs, Morgan Stanley and Deutsche Bank, recently warned
of the risk of a hard landing for the US economy.
Institutions generally expect the recession to begin by the second half of the year, but there is still a lot of debate
about the extent and duration of the impact.
Mark Zandi, chief economist at Moody's Analytics, wrote in his latest outlook that the continued slowdown in the U.
S.
economy may not ease
until 2024.

The outlook for the European economy is also gloomy, with the European Central Bank announcing a 50 basis point rate hike in December, bringing the three main rates in the current cycle to their highest levels
since December 2008.
The ECB stressed that it will continue to tighten policy in the future and has a plan to reduce its balance sheet as part of
its fight against stubborn inflation.
Interest rate futures showed funds betting that the ECB would raise its key interest rate to 3%
by June.

At present, the manufacturing and service PMIs in regional and major economies continue to be in the contraction zone, and the still high inflation continues to put pressure
on consumption and economic momentum.
With the negative effects of monetary policy set to be unleashed, Georgieva expects half of the EU to be hit by recession this year
.

Peter Cardillo, chief market economist at Spartan Capital Securities, said in the report: "Given the short-term pressure on the world economy, the first half of 2023 is likely to continue to see crude oil prices volatile lower
.
”

Abnormal weather disrupts supply and demand

Weather has become a short-term uncertainty affecting energy supply and demand in many parts of the world
.

According to reports, many places in the United States will encounter a new round of winter storms in the first week of the new year, and many places in the central and northern regions have issued weather warnings
.
The National Weather Service predicts that this winter storm is expected to bring heavy rainfall, severe thunderstorms, hail and tornadoes
to the lower Mississippi Valley, Gulf Coast, Tennessee Valley and southern Appalachian Mountains.

Recently, due to severe weather, US airlines have canceled flights widely, reducing the demand
for jet fuel.
At the same time, the snowstorm also reduced the capacity
of crude oil processing and transportation.
Amrita Sen, chief oil analyst at Energy Aspects, an energy consultancy, said the U.
S.
refining industry will be under
pressure for weeks due to cold weather.

The actual impact of severe weather will be expected to be reflected in inventory data soon, and the market is closely watching the upcoming weekly oil market reports
from the American Petroleum Institute ADP and the U.
S.
Energy Information Administration EIA.

The European New Year began with a rare winter heatwave
.
On January 1, the maximum temperature in the Polish capital Warsaw reached 18.
9 degrees Celsius, 5 degrees Celsius
above the previous record for the same period.
Countries such as the Netherlands, France, Germany, Denmark, Poland, the Czech Republic, Belarus, Latvia and Lithuania also set new temperature records in the first week of the new
year.

Warm weather and insufficient snowfall forced some low-altitude ski resorts in Europe to close
a few weeks after opening.
Scottish meteorologist Scott Duncan said on social media: "The warmest January temperatures recorded on record in many European countries have been observed, unprecedented in modern history
.
" The warmth and intensity of the entire region is somewhat incomprehensible
.
”

Dutch TTF natural gas futures continued to fall more than 11% on Wednesday

Warm weather hit Europe's winter peak energy consumption season, after the price of the Dutch TTF gas workhorse contract, the benchmark for European natural gas prices, fell this week to pre-escalation levels in Ukraine, which also hit demand
for crude oil as an alternative fuel option.

Saudi Arabia, the world's largest crude oil exporter, will be in focus on February oil quotations in the face of pressure from potential oversupply, with its flagship light crude selling price hitting a 10-month low last month, and the market expects that Saudi Arabia may choose to continue to cut prices to consolidate market share
.
Cartillo believes that if economic growth further hits the demand outlook, the Organization of Oil-Producing Countries (OPEC+) will consider making further noises for further production cuts, but the fiscal pressures on member countries may mean that the decision will be tested by internal differences
.