(Bloomberg) – A closely watched gauge of Asian oil demand has fallen to a seven-month low as a spike in virus cases in China triggers lockdown-style restrictions in the biggest importer of crude.
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Oman’s futures premium over Dubai swaps fell below $1 a barrel on the Dubai Mercantile Exchange on Thursday. It has plunged about 80% this month.
Global oil markets weakened in November, with a host of widely watched moves flashing warning signs and driving futures prices lower. Among them, rapid spreads for prime Brent crude and West Texas Intermediate in the U.S. plunged into contango, a downward price trend that indicates plentiful near-term supply. As red flags proliferate, Brent futures fell to their cheapest price since January earlier this week.
Expectations of a recovery in Chinese oil demand are fading as daily Covid-19 cases hit record highs, prompting authorities to step up containment measures and movement restrictions. In this difficult environment, some Chinese refiners are refraining from buying shipments of a preferred Russian quality, reducing demand just as traders await more details on a Group of Seven plan to cap Russian oil alongside. to the European Union sanctions which begin on December 5.
The Oman and Dubai futures swap gauge, which slipped below $1 for a day in April, has mostly commanded multi-dollar premiums since the invasion of Ukraine. It hit a high of $15 in March as many buyers began to shun Russian oil, increasing the appeal of Middle Eastern crude and increasing the premium.
With physical trades this month primarily concluded for shipments loaded in January, spot premiums for major Persian Gulf grades have fallen sharply. While China’s Rongsheng Petrochemical Co. bought around 7 million barrels mid-month, that wasn’t enough to boost morale, traders at those grades said.
Meanwhile, another physical indicator of the market – Dubai intermonth swaps – moved into contango on Friday, signaling declines from December to April, according to data from PVM Oil Associates. Prior to this week, the last time he was in contango was April 2021.
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