Oil had experienced a turbulent 2022, a year marked by tight supplies following the war in Ukraine, slowing demand from the world’s top crude importer China and growing fears over global economic growth.

Oil prices are set for another volatile year, as a weakening global economic outlook and a surge of COVID-19 infections in China threaten demand growth and offset the impact of supply shortfalls caused by sanctions on Russia.

The IMF Director Kristalina Georgieva said on Sunday that the economies of the United States, China and Europe are simultaneously slowing down, making 2023 tougher than 2022 for the global economy.

The oil market remains tight despite a deteriorating global outlook, as recessionary fears are growing, and the global economy is likely to fall into a recession in early 2023, caused by the effects of high inflation and rising interest rates. Demand for oil could then grow in the second half of 2023, driven by the easing of COVID-19 restrictions in China and by global central banks adopting a less aggressive stance on interest rates.

Crude surged in March 2022 with international benchmark Brent reaching $139.13 and WTI $130.50 a barrel, the highest since 2008, after Russia’s invasion of Ukraine altered global crude flows. Prices cooled rapidly in the second half of 2022 as central banks hiked interest rates and escalated worries of upcoming recessions.

While a recent increase in year-end holiday travel and Russia’s ban on crude and oil product sales supported crude prices, supply tightness will be offset by declining fuel consumption due to a deteriorating economic environment in 2023.

China’s zero-COVID restrictions, which were abandoned last month crushed demand recovery hopes as the world’s top oil importer and second biggest consumer in 2022 posted its first drop in oil demand for years.

While China is expected to recover in 2023, the recent surge in COVID-19 cases has cooled hopes of an immediate boost in barrel buying. The Chinese government has raised export quotas for refined oil products in the first lot for 2023. The increase to export quotas is likely related to expectations of poor domestic demand, as China continues to battle waves of COVID-19 infections.