Oil fell further from the lowest close in more than five months as traders counted down to an Opec+ meeting on production policy and tracked signs that physical crude markets have become less tight in recent weeks.
West Texas Intermediate dropped to near $93 a barrel after losing almost 5 per cent on Monday on signs a global slowdown will hurt energy demand. The Organization of the Petroleum Exporting Countries and allies are set to gather virtually on Wednesday to decide on output policy for September. As that meeting nears, the market’s backwardation, a bullish pattern, has narrowed.
In Asia, investors were monitoring a sharp rise in US-China tensions spurred by an expected visit of House Speaker Nancy Pelosi to Taiwan. The standoff has blunted appetite for risk assets, with stocks and most commodities lower.
Crude has opened August on a weak footing after declining for the prior two months on concerns that a global slowdown will eat into energy demand. The drop has eroded almost all of the gains seen since Moscow’s invasion of Ukraine in late February, even as Washington and the European Union imposed a raft of sanctions on Russian energy exports.
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“The narrative for oil prices continue to revolve around market pricing for growth risks, said Yeap Jun Rong, market strategist at IG Asia Pte. There are expectations of moderating demand, which could translate to a narrowing backwardation, he said, referring to the pattern where near-term prices command a premium to longer-dated ones.
Brent crude’s prompt spread — the difference between its nearest two contracts — has narrowed considerably this month after economic concerns deepened, OPEC producer Libya restarted supplies, and signs emerged of weaker US gasoline demand. The differential was $1.99 a barrel on Tuesday, down from near $4 about a month ago.
The Opec+ meeting comes after President Joe Biden urged Saudi Arabia to pump more on a visit to the kingdom last month. The alliance has already agreed to return all the supplies it took offline following the outbreak of the coronavirus pandemic, although some members have been unable to meet their production quotas in full.
Investors will also look to earnings and commentary from supermajor BP on Tuesday after rivals including Shell posted record profits. Oil prices are more likely to rise than fall as tightness in supply outweighs risks to demand, Shell chief executive Ben van Beurden said last week. — Bloomberg
