Oil fell nearly 5% on Wednesday after slumping in the previous session, weighed down by demand concerns stemming from the state of the global economy and rising COVID cases in China.

Brent futures fell $3.75 to $78.35 a barrel for a 4.6% loss by 1:02 a.m. EST (1802 GMT). US crude dropped $3.57, or 4.6%, to $73.36.

Both benchmarks also plunged more than 4% on Tuesday, with Brent posting its biggest daily decline in more than three months.

“The energy complex is furthering yesterday’s sharp decline in kicking this new year off on an extremely weak note,” said Jim Ritterbusch from Ritterbusch and Associates, who added that China’s COVID-19 cases were among the top drags on oil prices.

Data from China showed that while no new variant has been found there, the country has under-represented how many people have died in its recent rapidly spreading outbreak, World Health Organization officials said.

The state of the global economy and central bank rate hikes also weighed on crude prices.

“Worries about the state of the global economy are front and center of traders’ minds and will remain so for the foreseeable future,” said PVM Oil analyst Stephen Brennock.

US manufacturing contracted further in December, dropping for a second straight month to 48.4 from 49.0 in November, in the weakest reading since May 2020, the Institute for Supply Management (ISM) said.

At the same time, a survey from the US Labor Department showed job openings fell 54,000 to 10.458 million on the last day of November, raising concerns that the Federal Reserve would use the tight labor market as a reason to keep rates higher for longer.

The Chinese government increased export quotas for refined oil products in the first batch for 2023, signaling expectations of poor domestic demand.

Top oil exporter Saudi Arabia could cut prices for its flagship Arab Light crude grade to Asia in February, having been set at a 10-month low for this month, as concern about oversupply continued to cloud the market.

OPEC oil output rose in December, a Reuters survey found on Wednesday, despite an agreement by the wider OPEC+ alliance to cut production targets to support the market.

The Organization of the Petroleum Exporting Countries (OPEC) pumped 29 million barrels per day (bpd) last month, the survey found, up 120,000 bpd from November.

US crude oil stockpiles are likely to have risen by 2.2 million barrels, with distillate inventories expected to have fallen, a preliminary Reuters poll showed on Monday.

Industry group American Petroleum Institute is due to release data on US crude inventories at 4:30 p.m. EDT (2030 GMT) on Wednesday. The Energy Information Administration will release its figures at 10:30 a.m. (1430 GMT) on Thursday.

(Source: Reuters)