Oil edged lower on Wednesday after slumping in the previous session, weighed down by concerns about weak demand due to the state of the global economy and China's rising COVID cases.

Brent futures for March delivery fell 43 cents to $81.67 a barrel, a 0.5% loss, by 0700 GMT. U.S. crude dropped 39 cents, or 0.5%, to $76.54 per barrel.

Both benchmarks plunged more than 4% on Tuesday, with Brent suffering its biggest one-day loss in more than three months.

"Warning signs of global recession, China's lacklustre recovery with surging COVID-19 cases, renewed strength in the U.S. dollar and dampened risk sentiment are all catalysts keeping oil prices in check overnight," said Yeap Jun Rong, Market Analyst at IG, in a note.

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

Top oil exporter Saudi Arabia may further cut the prices for its flagship Arab Light crude grade to Asia in February, after they were set at a 10-month low for this month, as concerns of oversupply continued to cloud the market.

"The market remains worried about the impact of macro factors such as the economic downward pressure," said analysts from Haitong Futures.

The head of the International Monetary Fund warned that much of the global economy would see a tough year in 2023 as the main engines of global growth - the United States, Europe and China - were all experience weakening activity. 

The Fed also raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each. If the Fed intensifies its rate hikes, that could slow the economy and hamper fuel consumption.

Lending oil some support, the dollar weakened on Wednesday after posting big gains in the previous session. A weaker dollar typically boosts demand for oil as dollar-denominated commodities become cheaper for holders of other currencies.

U.S. crude oil stockpiles likely rose 2.2 million barrels, with distillate inventories expected down, a preliminary Reuters poll showed on Monday.

Industry group American Petroleum Institute is due to release data on U.S. crude inventories at 4.30 p.m. EDT (2030 GMT) on Wednesday. The Energy Information Administration, the statistical arm of the U.S. Department of Energy, will release its own figures at 10.30 a.m. (1430 GMT) on Thursday.

Reuters