The global oil market keeps sending up flares on the outlook for weaker demand. In the latest, a closely-watched gauge of Asian crude consumption tumbled to a seven-month low as surging virus cases in China trigger lockdown-like restrictions in the world’s biggest importer.
The premium of Oman futures over Dubai swaps fell below $1 a barrel on the Dubai Mercantile Exchange on Thursday. It’s plunged about 80% this month.
Oil markets have weakened in November, with a host of widely-watched metrics flashing warning signs and dragging futures prices lower. Among them, the prompt spreads for both Brent crude and leading US grade West Texas Intermediate have dipped into contango, a bearish pricing pattern that indicates ample near-term supply. As the red flags proliferate, Brent futures declined to their cheapest price since January earlier this week.
Expectations for a recovery in Chinese oil demand are fading as daily Covid-19 cases have hit record levels, spurring officials to step up containment measures and movement curbs. Amid the challenging backdrop, some Chinese refiners are refraining from buying cargoes of a favored Russian grade, cutting demand just as traders wait for more details on a Group of Seven plan to cap Russian oil alongside European Union sanctions that start on Dec. 5.
“The fact that Dec. 5 is not injecting any premium suggests the market is sanguine there will be no major supply disruption, at least nothing on a sustained basis,” said Vandana Hari, founder of Vanda Insights in Singapore.
