Oil Drops as China’s Struggle With Covid Blights Demand Outlook

(Bloomberg) — Oil extended declines after the biggest weekly drop since August as China tightened anti-Covid curbs, hurting the outlook for demand.

Most Read from Bloomberg

Global benchmark Brent fell below $87 a barrel after retreating by almost 9% last week. The country saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday, sparking fears of a further wave of restrictions in the world’s biggest oil importer just as a city of 11 million near the capital asked residents to stay home amid an outbreak.

Goldman Sachs Group Inc. lowered its fourth-quarter forecast for Brent crude by $10 a barrel to $100, according to a note, with the reduction driven in part by the possibility of further anti-virus measures in China as cases climb.

Crude has erased the gains made at the start of the quarter, when the Organization of Petroleum Exporting Countries and allies including Russia agreed to reduce production by 2 million barrels a day. A looming European Union ban on Russian seaborne flows and Group of Seven price-cap plan are clouding the outlook, with officials possibly set to announce the cap’s level on Wednesday as they step up their response to Moscow’s invasion of Ukraine.

“Potentially new mobility restrictions in China along with high Russian crude exports” are pushing prices lower, said Giovanni Staunovo, commodity analyst at UBS Group AG. The drop has been balanced by OPEC production cuts and solid demand in the US ahead of the Thanksgiving holiday, he said.

The market’s weakness is reflected in rapidly softening differentials. Brent’s prompt spread — the gap between its two nearest contracts — was 43 cents a barrel in backwardation, down from more than $2 a barrel a month ago. The same gauge for West Texas Intermediate has flipped into contango, a bearish signal that indicates ample near-term supply.

“The market is right to be anxious about forward fundamentals due to significant Covid cases in China and a lack of clarity on the implementation” of the price cap, Goldman analysts including Callum Bruce said. Still, for longer-term investors, the drop provides an opportunity to add length, they said.

Commodity investors also are concerned that further aggressive monetary tightening will lead to a global economic slowdown, hurting energy consumption. Traders this week will look to minutes of the most recent Federal Reserve policy meeting for more clues on the course of rate hikes.

Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button