Oil Ends August With Largest Monthly Decline Since November

Andurand insists that the oil market is "broken": File Image/Pixabay

Data released on Wednesday showed that oil suffered its third straight monthly decline, the longest run of losses in over two years, thanks to faltering economic growth in China and concern that interest rates will be raised again in the U.S. combat inflation – a move many experts warn will ruin demand.

West Texas Intermediate for October delivery settled $2.09 lower at $89.55 per barrel, while Brent for October settlement, which expired Wednesday, dropped $2.82 to $96.49 per barrel; WTI lost more than 9 percent in August, the largest monthly decline since November.

Harry Altham, an energy analyst for StoneX Group, said Wednesday’s trading activity “is a summation of overall sentiment for the month of August, in which rising central bank interest rates are seen as the brake pedals to oil demand growth.”

As usual, the market heading into September was fraught with mixed messages and seemingly contradictory data: Zhou Mi, an analyst at Chaos Research Institute in Shanghai, said the overall sentiment is driven by “pessimistic macro-economic expectations, coupled with tight supply from low inventories.”

However, Bloomberg noted that key time spreads suggest that market tightness has eased, with WTI’s prompt spread settled for August at 52 cents per barrel in backwardation compared with $1.87 a month ago.

Not to be outdone, the Organization of the Petroleum Exporting Countries (OPEC) weighed in with its view of near-term expectations by slashing forecasts for this year’s supply surplus in half, to 400,000 barrels per day, according to a report from its committee of technical experts; this is in addition to the expectation that stockpiles in developed nations are set to remain below the average for the period from 2015 to 2019 for the rest of this year and next.

Also, OPEC’s Joint Technical Committee endorsed a recent declaration from de facto group leader Saudi Arabia to reduce output, in order to resolve a growing disconnect between prices and fundamentals (it has widely been said by analysts that the cartel won’t tolerate prices under $100 per barrel).

Reports on Wednesday continued to demonstrate how high prices are hurting opportunities on one hand but beneficial in others: an example of the latter was news that Alberta, Canada’s biggest oil producing province, will achieve a $10 billion surplus in its current fiscal year, a 25-fold increase from initial projections.

Prior to prices surging about 32 percent in the past 12 months, Alberta ran a $17 billion deficit in the fiscal year ended March 2021; the surplus will allow the province to ease taxes and help Albertans weather the inflation, according to premier Jason Kenney.

But such disclosures didn’t prevent noted hedge fund manager Pierre Andurand from describing the oil market as “broken”: he opined on Twitter that futures can now move $10 lower per day “for no apparent reason.”

Scott Shelton, energy specialist at ICAP, agreed, stating “The market has stopped even asking why we are down $5 in a session or why we are down $2.50 this morning.”