Oil fell on signs that supplies may be rebounding and concerns that economic growth in China is headed for a slowdown.
(Bloomberg) — Oil fell on signs that supplies may be rebounding and concerns that economic growth in China is headed for a slowdown.
West Texas Intermediate slipped below $81 a barrel after trading in a range of almost $2 on Monday. Oil prices diverged from broader markets after Reuters reported that Iraq’s oil minister plans to discuss resuming oil exports through the Ceyhan terminal in Turkey. Adding to bearish sentiment are surging monthly oil exports from Iran, which are swelling global flows at a time when other producers are cutting back.
Traders also continue to keep an eye on the economic malaise in China that has contributed to recent declines. Chinese banks made a smaller-than-expected cut to their benchmark lending rate Monday, despite the central bank putting pressure on lenders to boost loans.
“We will continue to test $80 to the downside in WTI until rates take a breather or we get more aggressive stimulus from China,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “The market tightness is pretty well priced at this point as evidenced through spreads. Right now macro is back in the driver’s seat, and rates and China are the drivers.”
Yet the market continues to show signs of strength, with the nearest-term segment of the oil futures curve signaling that supplies are being constricted amid production cuts from OPEC+ linchpins Russia and Saudi Arabia. Meanwhile, refined products such as diesel — the workhorse fuel of the global economy — have started pricing in scarcity this winter, boosting their premium to the oil from which they are made. Gasoline futures in New York have risen about 13% this year, outpacing crude.
The annual Jackson Hole symposium in Wyoming, which features speakers including Federal Reserve Chair Jerome Powell, may provide clues on the direction of interest rates in the US. Low crude-trading volumes have exacerbated swings, with aggregate open interest hovering near the lowest levels this year as investors travel for holidays.
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