Global Oil Market Flashes Warnings as Demand Concerns Spike

(Bloomberg) — Global oil markets continue to fume on a weak demand outlook. In the latest, a closely watched gauge of Asian crude oil consumption hit a seven-month low as a surge in virus cases in China prompted lockdown-like restrictions in the world’s biggest importer.

Read the most from Bloomberg

The premium of Oman futures on Dubai swaps fell below $1 a barrel on the Dubai Mercantile Exchange on Thursday. It has fallen almost 80% this month.

The oil market has weakened in November, with widely watched metrics flashing warning signs and driving futures prices lower. Among them, the early spreads for both Brent crude and leading US grade West Texas Intermediate have plunged into contango, a bearish pricing pattern indicating ample near-term supply. As red flags spread, Brent futures fell earlier this week to their cheapest price since January.

Hopes of a recovery in Chinese oil demand are waning as daily Covid-19 cases hit record levels, prompting authorities to tighten containment measures and curb movement. Amid the challenging backdrop, some Chinese refiners are refraining from buying cargoes of a preferred Russian grade, cutting demand, as traders prepare to cap Russian oil with EU sanctions starting December 5. Awaiting more details on the Group of Seven plan.

Vandana Hari, founder of Wanda Insights in Singapore, said, “The fact that no premium is being put on December 5 shows that the market is optimistic there will be no major supply disruption, at least on an ongoing basis.” Just nothing.”

Brent futures posted a third weekly decline on Friday amid further signs from China that anti-virus restrictions are multiplying in major cities as authorities seek to stem the Covid-19 outbreak. In Beijing, the capital that is home to 22 million people, a new round of restrictions has begun, with residents told not to go outside.

The Oman futures-Dubai swap gauge, which slipped below $1 a day in April, has mostly commanded several-dollar premiums since the Ukraine invasion. It hit a high of $15 in March as many buyers began avoiding Russian oil, increasing the appeal of Middle Eastern crude and driving up premiums.

With physical trading concluded this month for most January-loading cargoes, spot premiums for Persian Gulf core grades declined sharply. While China’s Rongsheng Petrochemical Co bought nearly 7 million barrels in the middle of the month, that was not enough to lift sentiment, traders in those grades said.

Meanwhile, another physical market indicator – the inter-month Dubai swap – was in a contango early on Friday, indicating a bearish outlook for December to April, before reverting to a slightly bearish structure, PVM Oil Associates said. revealed from the data. Before this week, the last time it was in Contango was in April 2021.

Brent was trading near $87 a barrel on Friday after hitting $82.31 on Monday, its lowest level since January.

(Updated with latest Dubai swaps in last paragraph.)

Read the most from Bloomberg Businessweek

©2022 Bloomberg L.P.

Leave a Comment

close button