Crude Oil Price Drops in Wake of China's Slow Economic Recovery

By: Miguel A. Rodriguez

10:39, 17 January 2023

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Wholesale prices in Germany dropped by -1.6% in December, providing hints about today's Consumer Price Index and potential economic trends. 

Due to the Martin Luther King Day holiday in the United States, stock markets were virtually silent throughout the day, as there were no economic data or events. 


In recent days, expectations that Europe will avoid an economic contraction this year have risen due to the collapse of natural gas prices and the strengthening of the euro and pound. These two factors will significantly reduce pressure from imported inflation, potentially allowing the European Central Bank to be less aggressive with interest rate hikes. The same could happen with the Bank of England.  


Yesterday, the figures for wholesale prices in Germany were released, showing a drop of -1.6% in December. It should be noted that this data is considered a leading indicator for the Consumer Price Index (CPI), which was published today, January 17th


Another positive factor that would benefit Europe is the reopening of China after abandoning its zero Covid policy. European exports were severely impacted by the economic downturn in Asia. Furthermore, the Chinese government's recent decision to lift regulatory restrictions on some technology companies has added an element of optimism. 


The Q4 corporate earnings season will be in the spotlight for US investors. So far, we have seen some banks, such as JP Morgan and Bank of America, perform better than analysts' estimates, providing positive sentiment to a cautiously optimistic outlook at the beginning of the year. 


In the commodities market, the downward pressure continues, especially in the energy sector. 


On January 16th, crude oil prices dropped due to indications that the anticipated resurgence in Chinese demand may take more time to come to fruition than initially predicted. One sign that this may be the case comes from recent Chinese energy market reports suggesting that Chinese gas traders are diverting LNG cargoes to Europe due to high storage levels, indicating subdued demand from the country’s industry. 

Sources: Bloomberg, Reuters 

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