Oil prices slumped to a near two-month low in early Asian trading Monday morning, as supply worries eased while worries over China’s fuel demand and rising interest rates weighed on prices.
Brent crude futures for January delivery slipped 28 cents, or 0.3 percent, to trade at $87.34 a barrel by 0103 GMT, having settled at their lowest level since Sept. 27 at the weekend.
US West Texas Intermediate (WTI) crude futures for December delivery were trading at $80 a barrel, down 8 cents ahead of the contract expiration on Monday.
The more active January contract fell 21 cents to trade at $79.90 a barrel.
Both benchmarks closed on Friday (18/11/2022) at their lowest levels since Sept. 27, extending losses for a second week, with Brent down 9.0 percent and WTI 10 percent lower. The price spread for next month Brent crude oil futures narrowed sharply last week, while WTI turned into a contango (a situation in which commodity futures prices are higher than spot prices), reflecting reduced supply concerns.
Tight crude supplies in Europe have eased as refineries have stockpiled ahead of the European Union’s Dec. 5 embargo on Russian crude, putting pressure on physical crude markets across Europe, Africa and the United States.
The European Union’s energy policy chief told Reuters the EU hoped to have regulations finalized in time for the introduction of the G7 plan to cap Russian crude prices on Dec. 5.
RBC Capital analyst Mike Tran said the weak December WTI contract expiring today indicated selling in the paper market rather than weakness in the actual physical market.
“Tight global inventories not supporting the traditional surplus of barrels is the reason for the contango,” he said in a note.
While indicators for the While North Sea and West Africa spot markets were far from strong, they also showed no signs of struggling, he added.
The diesel oil market remains tight, with Europe and the United States competing for barrels.
While China nearly doubled its diesel exports in October from a year earlier to 1.06 million tonnes, volumes were far below September’s 1.73 million tonnes.
Demand at the world’s top crude importer remains hampered by COVID-19 restrictions while expectations of further rate hikes elsewhere have boosted the greenback, making the dollar-denominated commodity more expensive for investors.