By Ann Koh and Alex Longley
Futures in London traded below $42 a barrel after dropping 1.5% on Monday. Only four of 10 Asian refiners surveyed by Bloomberg said they would be trying to buy more Saudi Arabian crude after the kingdom cut pricing for October as consumption remained below pre-virus levels. Abu Dhabi National Oil Co. joined in the price cuts on Tuesday, the latest response to a sluggish demand backdrop in the world’s biggest oil-consuming region.
A stalling Asian demand recovery, the end of the U.S. summer driving season and more supply from the OPEC+ alliance are adding up to a bleak short-term outlook for oil prices. Brent crude’s three-month timespread is nearing the widest contango — where prompt prices are cheaper than later-dated ones — since late May, an indication that concerns about oversupply are returning.
“The key concern for the market remains demand,” said Warren Patterson, head of commodities strategy at ING Bank NV. “With China having restocked in prior months, sizable fresh Chinese buying appears to be absent from the market at the moment.”
Coupled with concerns over the pick up in Chinese demand, tensions are rising between the U.S. and the world’s largest importer. President Donald Trump said that he intends to curb the U.S. economic relationship with China, threatening to punish any American companies that create jobs overseas and forbid those that do business in China from winning federal contracts.
Widening contangoes in both Brent and WTI combined with a slump in tanker rates may also be starting to incentivize floating storage. Storing crude at sea has become profitable again for northwest Europe and the Mediterranean, shipbroker and exchange data compiled by Bloomberg show.