(Bloomberg) — The global oil market is still reeling on the prospect of weaker demand. Most recently, a sharp gauge of Asian crude consumption fell to a seven-month low as surging virus cases in China prompt lockdown-like restrictions in the world’s biggest importer.
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The Oman futures premium over the Dubai swaps fell below $1 a barrel on the Dubai Shipping Exchange on Thursday. It has plunged about 80% this month.
Oil markets have weakened in November, with many widely watched metrics flashing warning signs and pulling futures prices lower. Among them, the prompt spread for Brent crude and US front-runner West Texas Intermediate has fallen into contango, a bearish pricing pattern that indicates plenty of near-term supply. As the red flags mount, Brent futures fell to their cheapest price since January earlier this week.
Prospects for a recovery in China’s oil demand are fading as daily cases of Covid-19 hit record levels, prompting officials to increase containment measures and curb movement. Amid the challenging backdrop, some Chinese refiners are refraining from buying their preferred Russian-grade cargoes, reducing direct demand as traders wait for more details on the Group of Seven’s plan to curb Russian oil alongside EU sanctions Europeans that start on December 5th.
Brent futures headed for a third weekly drop on Friday amid further signs from China that anti-virus restrictions in capital cities are increasing as officials try to mitigate Covid-19 outbreaks. In Beijing, the capital city of 22 million people, there is a new round of curbs, and residents have been asked not to leave.
The gauge of Oman futures-Dubai swaps, which fell below $1 for one day in April, commanded multi-dollar premiums largely from the Ukraine invasion. It rose as high as $15 in March as many buyers began to shun Russian oil, raising the appeal of Mideast crude and boosting the premium.
With physical trading this month largely completed for January loading shipments, spot premiums for the main Persian Gulf grades have fallen sharply. Although China’s Rongsheng Petrochemical Co bought about 7 million barrels in the middle of the month, that was not enough to lift sentiment, traders of those grades said.
Meanwhile, another physical market indicator – inter-monthly Dubai swaps – entered contango on Friday, signaling bearish for December to April, PVM Oil Associates data showed. Before this week, the last time it was in contango was April 2021.
Brent traded at $85.72 a barrel on Friday after hitting $82.31 on Monday, the lowest intraday price since January.
(Details of the Beijing outbreak are added in the fifth paragraph.)
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