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Warnings Are Flashed On The World Oil Market As Demand Worries Spike

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The global oil market continues to show signs of instability in response to the prospect of declining demand. In the most recent development, a closely watched gauge of Asian crude consumption fell to a seven-month low. This occurred as a result of rising virus cases in China, which triggered restrictions similar to lockdowns in the world’s largest importer. On Thursday, the difference in price between Oman futures and Dubai swaps fell below $1 a barrel on the Dubai Mercantile Exchange (DME). This month, it has decreased by approximately 80%.

The oil markets have been in a state of decline throughout the month of November, with a variety of widely followed metrics sending out warning signals and bringing futures prices down. The prompt spreads for Brent crude and the leading US grade West Texas Intermediate have both dipped into contango, which is a bearish pricing pattern that indicates there is ample near-term supply. This pattern indicates that prices are likely to fall in the near future. Brent futures hit their lowest price since January at the beginning of this week as a number of warning signs became increasingly prevalent.

As the number of daily cases of Covid-19 has reached record highs, analysts are becoming increasingly pessimistic about the prospects for a recovery in Chinese oil demand. This has prompted officials to step up containment measures and restrict movement. As a result of the challenging environment, some Chinese refiners have decided not to purchase cargoes of a preferred Russian grade. This has led to a reduction in demand at a time when traders are waiting for more information on a plan by the Group of Seven to place a cap on Russian oil in conjunction with sanctions that will be implemented by the European Union on December 5.

According to Vandana Hari, founder of Vanda Insights in Singapore, “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.” “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.”

Brent futures were on track for a third weekly loss on Friday as further evidence emerged from China indicating that anti-virus restrictions are increasing in a number of key cities as Chinese authorities seek to halt the spread of Covid-19. A new round of restrictions has been implemented in Beijing, the capital of China, which is home to 22 million people. Residents have been asked not to leave the city.

After falling below $1 for one day in April, the Oman futures-Dubai swaps gauge has mostly commanded multiple-dollar premiums ever since the invasion of Ukraine. In April, the reading fell below $1 for that one day. It reached a high of $15 in March after many buyers began to avoid purchasing Russian crude oil, which increased the demand for crude oil from the Middle East and drove up the premium.

Since most of the physical trading for January-loading cargoes has been completed this month, spot premiums for key Persian Gulf grades have experienced a significant drop. According to traders of those grades, even though China’s Rongsheng Petrochemical Co. did purchase approximately 7 million barrels around the middle of the month, this was not enough to lift the sentiment.

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PVM Oil Associates data showed that another physical market indicator, known as inter-month Dubai swaps, was in a contango at the beginning of trading on Friday, signaling bearishness for the months of December through April. However, the structure of the swaps later flipped to a slightly backwardated position. The previous time it was in contango was in April of 2021, so this week marks the first time it has been there since then.

On Friday, the price of a barrel of Brent was close to $87, up from its intraday low of $82.31 on Monday, which was the lowest price since January.

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