(Bloomberg) — Oil fell to the lowest intraday in more than a month as a string of renewed lockdown measures in Europe clouded the prospects for a speedy recovery in consumption.
U.S. and global benchmark futures plunged more than 6% to new session lows, and the oil futures curve collapsed into a structure indicating near-term weakness. Europe’s demand recovery is set to take another hit with Germany, France and Italy all having widened lockdown measures this month. Meanwhile, coronavirus cases are surging in India and threatening the economy’s recovery from recession.
“With much of Europe being shuttered, the implications ultimately for next quarter are that the demand increases may not be as robust,” said Bart Melek, head of commodity strategy at TD Securities. “We’re continuing to see broad long liquidations in the oil space here, and it stands to reason that long positions could restart the trend lower.”
Tuesday’s selloff was the latest move lower in a tumultuous week in the oil market. Weakness in physical markets has grown recently, which coupled with a resurgent coronavirus in some parts of the world, has dragged crude lower. OPEC+, which is holding on to output cuts in an attempt to buoy prices, could remain cautious about any future supply increase when it meets next week if prices remain on the back foot.
“Open interest has fallen sharply in recent days as volatility-targeted funds deleverage en masse given the increased trading ranges of late,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “This fall in open interest has taken the wind out of the oil market’s sails, so to speak, as these influential speculative ‘longs’ are forced to pare down position sizes.”
In other markets, the dollar climbed, making commodities priced in the currency more expensive, and an advance in U.S. Treasuries showed haven buying, adding to the risk-off mood.
What Bloomberg Intelligence Says:
“U.S. production costs signal that WTI is as vulnerable as it was near the 2018 peak. Even if optimistic outlooks for a quick return to pre-pandemic consumption play out, U.S. producers have plenty of incentive to keep supplying more crude than demand can absorb.”– Mike McGlone, BI commodities strategist
The weakness in the nearest part of the futures curve comes as stockpiles built up last year are being unwound from storage, according to consultant Energy Aspects. The contango structure is unlikely to last because the removal of oil from inventories is part of the market’s ongoing re-balancing, the consultant said.
“The road to oil demand recovery appears to be full of obstacles,” said Bjornar Tonhaugen, head of oil markets at consultant Rystad Energy. “The depth of the correction is surprising in a way, as we are just about a week ahead of the upcoming OPEC+ ministerial meeting on April 1 and as the U.S. fiscal stimulus is supposed to boost market confidence.”
In the U.S., crude inventories are expected to have risen last week for the fifth straight week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report its storage figures later Tuesday ahead of U.S. government weekly data.
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Read More:Oil Plunge Quickens With Renewed Lockdowns Clouding Horizon
2021-03-23 17:45:20
