The global oil market is warning about the increase in demand

The global oil market continues to send flames due to weakening demand. Most recently, a closely watched gauge of Asian crude oil consumption fell to a seven-month low as rising virus cases in China led to lockdown-like restrictions at the world’s biggest importer.

The premium on Dubai swaps for Oman futures fell below $1 a barrel on the Dubai Commodity Exchange on Thursday. It’s down about 80% this month.

Oil markets weakened in November, with a number of widely-watched indicators flashing warning signs and sending futures lower. Among them, fast spreads for both Brent crude and leading US West Texas Intermediate crude fell into contango, a low-price pattern that indicates ample near-term supply. As red flags piled up, Brent futures fell to their cheapest price since January earlier this week.

Expectations for a recovery in Chinese oil demand are fading as daily Covid-19 cases hit record levels, prompting officials to tighten containment measures and movement restrictions. Against a tough backdrop, some Chinese refiners are reluctant to buy cheap Russian-branded cargoes, dampening demand as traders wait for more details on the Group of Seven plan, along with European Union sanctions on Russian oil starting on Dec. 5.

Brent futures fell for a third straight week on Friday amid further signs from China that anti-virus restrictions were increasing in major cities as officials sought to contain the spread of Covid-19. In Beijing, the capital city of 22 million people, there is a new era in which residents are asked not to leave.

Oman futures-Dubai swaps, which fell below $1 in a single day in April, have commanded multi-dollar premiums, mostly after the Ukraine invasion. It rose to $15 in March as many buyers shied away from Russian oil, making Middle Eastern crude more attractive and pushing up the premium.

Spot premiums for key Gulf prices fell sharply as physical trading closed this month for mostly January cargoes. China’s Rongsheng Petrochemical Co. although the company bought about 7 million barrels of oil in the middle of the month, it was not enough to lift the mood.

Meanwhile, data from PVM Oil Associates showed that another physical market indicator – inter-month Dubai swaps – turned contango on Friday and pointed to bearish for December-April. Before this week, it was last in contango in April 2021.

Brent traded at $85.72 a barrel on Friday, the lowest intraday price since January, after reaching $82.31 on Monday.

© 2022 Bloomberg