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Global Oil Market Flashes Warnings as Demand Concerns Spike

Global Oil Market Flashes Warnings as Demand Concerns Spike

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(Bloomberg) — Global oil markets keep sending out alarms about the prospect of weaker demand. The latest closely watched gauge of Asian crude oil consumption fell to a seven-month low as rising virus cases in China trigger restrictions in the world’s largest importer.

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The premium for Oman futures compared to Dubai swaps fell below $1 per barrel on the Dubai Mercantile Exchange on Thursday. It’s down about 80% this month.

The oil market has weakened in November, with many widely followed gauges flashing warning signs and dragging futures prices down. Among them, the fast spreads in both Brent crude and the leading U.S. West Texas Intermediate have fallen into contango, a bearish pricing pattern that indicates abundant near-term supply. As red flags mount, Brent futures fell to their lowest price since January earlier this week.

Expectations of a recovery in China’s oil demand are fading as daily Covid-19 cases hit a record high, prompting officials to step up containment measures and restrictions on movement. In a challenging environment, some Chinese refiners are refraining from buying preferred Russian-grade cargoes, dampening demand as traders wait for more information on the Group of Seven’s plan to restrict Russian oil alongside European Union sanctions starting on December 5.

Brent futures headed for a third weekly drop on Friday after more signs emerged from China that anti-virus restrictions in key cities will multiply as officials seek to contain the outbreak of Covid-19. In Beijing, the capital city of 22 million people, a new curb has been laid and residents have been asked not to leave.

The swap gauge between Omani futures and Dubai, which fell below $1 for one day in April, has mostly seen multi-dollar premiums since the occupation of Ukraine. It rose as high as $15 in March as many buyers began to shun Russian oil, adding to the appeal of Middle Eastern crude and pushing up the premium.

As physical trade this month ended mostly for January transshipments, spot premiums for key Gulf grades have fallen sharply. Although the Chinese Rongsheng Petrochemical Co. bought about 7 million barrels in the middle of the month, it was not enough to lift sentiment, traders of those grades said.

Meanwhile, another physical market indicator – inter-month Dubai swaps – turned into contango on Friday, showing a decline from December to April, data from PVM Oil Associates showed. Before this week, it was last in contango in April 2021.

Brent traded at $85.72 a barrel on Friday after hitting $82.31 on Monday, the lowest intraday price since January.

(Information about the outbreak in Beijing will be added to the fifth paragraph.)

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©2022 Bloomberg LP

Source: https://finance.yahoo.com/news/global-oil-market-flashes-warning-034454609.html

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