Oil Resumes Losses On Word Of Covid Increases In China

But some analysts remain focused on low global supplies and a cold winter: File Image/Pixabay

The rollercoaster pattern of trading that characterizes the crude market was on the downward trajectory on Tuesday as increasing Covid cases in various Chinese cities spelled further lockdowns under the ruling Communist Party's zero-tolerance Covid policy – and exacerbated https://www.businesstimes.com.sg/energy-commodities/oil-prices-slide-us2-on-china-demand-worries-us-midterm-elections  demand fears.

Brent fell $2.36, or 2.6 percent, to $95.36 per barrel, while West Texas Intermediate fell $2.88, or 3.1 percent, to $88.91 per barrel.

Dennis Kissler, senior vice-president of trading at BOK Financial, echoed the frustrations of colleagues by remarking, "the 'on again/off again' news of lockdowns continues," but he added that oil and diesel supplies remain chronically low, thus limiting the downside for prices as the cold weather season arrives.

Kissler was referring in part to U.S. Energy Information Administration data showing that domestic inventories of distillate fuels finished October at their lowest levels for any October since 1951.

Still, on Tuesday the EIA cut its energy demand outlook for 2023 and forecast domestic production to be 21 percent lower than previously expected; as for output this year, it is estimated at an average 11.83 million barrels per day (bpd), still about 10 percent below the level seen back in February 2020.

This came on the heels of news that U.S. crude stocks rose by about 5.6 million barrels for the week ended Nov 4, compared to an expected 1.1 million barrel rise.

For the record, the biggest factor in the slowdown of U.S. production growth was said to be shale companies' commitment to profits over production, a major reversal from the preceding decade when they increased output at almost any cost.

Given the choppy trading of crude for the past few weeks it's almost impossible to guess where the commodity is headed, something appreciated by Ed Moya, senior market analyst at Oanda Corp.; he said, "Brent crude is hovering below the $100 a barrel level for now but it seems the oil market is convinced it is one headline away from breaking above that key barrier.

"Energy traders still remain confident that the oil market is still going to remain tight throughout this winter even if China's reopening is slightly delayed."

The recent controversial decision by the Organization of Petroleum Exporting Countries (OPEC) to slash production was also a topic of discussion on Tuesday; Helge Andre Martinsen, senior analyst at DNB Bank, said, "I think OPEC+ is super-happy with stabilizing Brent in the $90s," but "there is a real risk of over-tightening in the next three-to-five months."

Unsurprisingly, this view was challenged by other analysts: "We're in a world where demand is sloshing downward," said Ed Morse, head of commodities research at Citigroup Inc. "There's ample supply in the market."