Oil Extends Decline as Market Metrics Point to a Weaker Outlook

image is BloomburgMedia_SDS137DWX2PS00_21-05-2024_06-07-19_638518464000000000.jpg

Storage tanks at the EPPLN oil depot, blockaded by striking members of the General Confederation of Labour (CGT), in Port La Nouvelle, France, on Wednesday, March 22, 2023. French President Emmanuel Macron doubled down on his plan to reform pensions, comparing protesters to the crowds who stormed the US Capitol, in a lunchtime interview a day before a new round of strikes and demonstrations against his reform. Photographer: Matthieu Rondel/Bloomberg

Oil fell as metrics showed signs of a weaker market despite an uptick in geopolitical tensions before an OPEC+ meeting on supply.

Brent’s prompt spread narrowed to its smallest backwardation since January, while money managers continued to reduce bets on gains. Futures have been trading in a tight range, with implied volatility near the lowest since 2019.

The global benchmark dropped toward $83 a barrel, after ending 0.3% lower on Monday, while West Texas Intermediate was near $79, despite more Ukrainian drone attacks on Russian refineries, and another Houthi strike against a tanker in the Red Sea over the weekend.


Oil is about 8% higher this year due to the OPEC+ cuts, but Brent has eased since mid-April. Traders are looking to a meeting of the cartel in early June that will set the group’s supply policy for the second half, with market watchers largely expecting a rollover of curbs.

The value of swaps tied to physical North Sea cargoes was negative for the first time since February on Monday, adding to the bearish signs. Some refiners have also cut processing rates, citing poor demand for fuels.

“Dented demand prospects are casting a shadow over the oil markets,” said Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova Pte in Singapore. “Whatever support we see in oil prices is purely a function of an anticipatory disruption in supplies, and it’s becoming tougher day by day to justify that premium,” she said.

©2024 Bloomberg L.P.

By Yongchang Chin


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