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Global oil market flashes warnings


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 US$1 (RM4.5) 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 favoured 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.

Brent futures headed for a third weekly drop yesterday 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 US$1 (RM4.5) for one day in April, has mostly commanded multiple-dollar premiums since the invasion of Ukraine.

It spiked as high as US$15 (RM67.5) in March as many buyers started shunning Russian oil, raising the appeal of Mideast crude and boosting the premium.

With physical trading this month mostly concluded for Januaryloa­ding cargoes, spot premiums for key Persian Gulf grades have declined sharply. — Bloomberg

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