December 9, 2022

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Global Oil Market Flashes Warnings as Demand Concerns Spike

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(Bloomberg) — 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.

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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.

Brent futures headed for a third weekly drop on Friday amid further signs from China that anti-virus restrictions in key cities are multiplying as officials seek to quell Covid-19 outbreaks. In Beijing, the capital that’s home to 22 million people, there’s been a fresh round of curbs, with residents asked not to leave.

The Oman futures-Dubai swaps gauge, which slipped below $1 for one day in April, has mostly commanded multiple-dollar premiums since the invasion of Ukraine. It spiked as high as $15 in March as many buyers started shunning Russian oil, raising the appeal of Mideast crude and boosting the premium.

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2022-11-25 00:39:51

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