Nov 18, 2022
Oil slumps 10% this week as oversupply fears send bulls to exits
We’re already running out of fuel and cold weather hasn’t even begun yet: Oil analyst Stephen Schork
Oil dropped the most in a week since April as the full weight of languishing Chinese demand and more economic tightening radically shifted the market’s sentiment.
West Texas Intermediate fell 1.9 per cent to settle just over US$80 a barrel. U.S. futures fell 10 per cent this week, the most since Biden ordered a historic discharge of crude from the Strategic Reserves in April. Swelling COVID cases in China and aggressive monetary tightening by central banks have combined to erase all the gains earned last month when OPEC and its partners slashed production by 2 million barrels a day.
Pullbacks were evident along most of the oil-trading complex. On Friday, the U.S. prompt-spread flipped into contango, a structure that signals oversupply, for the first time since last year. Meanwhile, a deteriorating market for physical barrels has also weighed on prices as demand for winter-delivery cargoes has weakened.
The collapsing gauges of market health sent bulls running for the exits. Hedge funds slashed bullish bets for Brent crude the most in four months. Money managers’ net-long positions on the international benchmark fell around 30,000 contracts, according to data from the U.S. Commodity Futures Trading Commission released Friday
Crude is trading below several key moving averages, sparking so-called technical-based selling. A further collapse in the market’s structure on Friday added to the selling.
- WTI for December delivery lost US$1.56 to settle at US$80.08 a barrel at New York time.
- Brent for January fell US$2.16 to settle at US$87.62 a barrel.
Coronavirus cases in China have climbed to near their highest level of the pandemic, as authorities signal they’re preparing for even more infections. The increases will likely prove a test for any loosening of the country’s COVID rules.