Oil Extends Drop on Demand Concerns as Geopolitical Risks Ease
(Bloomberg) — Oil extended losses as investors shifted their focus back to concerns over the demand outlook after geopolitical tensions eased.
West Texas Intermediate slid toward $84 a barrel after closing 1.5% lower on Wednesday. China is grappling with rising Covid cases, while JPMorgan Chase & Co. projected the US will enter a “mild” recession next year due to interest-rate hikes. A stronger dollar added to bearish headwinds.
NATO and Polish leaders said there’s no indication a missile that struck the nation’s border with Ukraine was an intentional attack by Russia, easing fears it might lead to an escalation of the war in Europe. The Druzhba pipeline that carries Russian oil westward also restarted after a power disruption.
There was little price reaction after US government data showed commercial stockpiles shrank by 5.4 million barrels last week, the biggest weekly drop since August. Still, the global supply outlook remains uncertain, with the European Union set to sanction Russian crude flows from December.
“With geopolitical risks having subsided somewhat, demand concerns have once again taken center stage for the oil market,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Chinese demand remains a concern.”
China’s daily Covid cases surged again on Wednesday and are nearing the all-time high reached during the worst of Shanghai’s massive outbreak earlier this year. Oil prices remain under pressure as the nation continues to lock down entire regions, according to a note from Citigroup Inc.
Widely watched time spreads remain in a bullish backwardation structure, but they’ve narrowed in recent sessions. Brent’s prompt spread — the difference between its two nearest contracts — was $1.19 a barrel in backwardation, compared with $1.86 at the start of the month.
Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.
Comments are closed.