Oil slumped as rising COVID cases in China and stalling rates of US gasoline consumption ignited demand fears, while low trading volumes continued to exacerbate market moves.
West Texas Intermediate settled around US$96 a barrel after falling 3.5 per cent on Thursday. The slump comes as China’s virus cases hover at a two-month high, posing a challenge to the oil-consuming country’s COVID Zero strategy. Open interest across the main futures contracts hovers around six-year lows, leaving the market vulnerable to sharp moves.
Compounding bearish sentiment, Libya is restoring production with output rising above 700,000 barrels a day after restrictions on exports were lifted. Output is expected to return to 1.2 million barrels a day within a week to 10 days. The premium of the nearest crude futures contract over the next month eased, indicating cooling concerns about market scarcity.
“Exhaustion is settling in on the oil trade,” said Ed Moya, senior market analyst at Oanda Corp. “Oil is no longer the easiest trade on Wall Street and that has many traders abandoning their bullish bets.”
After rallying for most of the first half of the year, oil prices have faltered in recent weeks, erasing almost all of their gains since Russia’s invasion of Ukraine due to fears of recession, central bank tightening and a broad move by investors away from commodities. Prices have swung sharply at times this week as volatility reigns over the market.
The softness in gasoline in particular can be seen in prices. The fuel’s premium over US crude was more than US$60 a barrel at one point in June, and is now less than half that. At the same time, retail fuel prices in the US have fallen for 37 consecutive days.
Prices:
- WTI for September delivery shed US$3.53 to settle at US$96.35 a barrel in New York.
- Brent’s equivalent contract fell US$3.06 to settle at US$103.86 a barrel.
Traders also tracked events in Europe as Russia’s biggest gas pipeline to the continent restarted after a 10-day maintenance period. While there had been concern that a failure to restore the flows would roil energy prices, operator Nord Stream AG said Moscow had begun sending gas through, bringing some relief to markets.
In Asia, China’s persistence with its strategy of trying to eradicate COVID-19 has acted as a drag on energy usage and slowed regional growth. The Asian Development Bank cut its forecast for gross domestic product growth in developing Asia as Beijing’s approach to the virus creates ripple effects.
Advertisement