Oil Falls From Two-Month High as China Evergrande Fears Loom

Sep 23, 2021

(Bloomberg) Oil edged down from its highest close in almost two months amid ongoing concerns about the risk to markets from China Evergrande Group’s ongoing tumult. However, there are signals that stockpiles globally are declining.Futures in London fell after earlier touching their highest level since July 14. Dow Jones reported that China has asked local governments to prepare for Evergrande’s potential failure, causing equity markets to pare earlier gains, though the company has been told to avoid near-term default on its bonds.

Still, government data Wednesday showed nationwide U.S. crude inventories fell for a seventh week, while those at a key hub in Europe remain below average levels for the time of year.

With stockpiles falling, the market’s structure has rallied strongly. Brent’s nearest December contract is almost $7 more expensive than the next year’s, the most since 2019. That’s a sign of traders growing increasingly positive on the outlook. A similar gauge of strength in the U.S. market is the strongest since 2013.

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Brent's futures curve has strengthened, a sign of a tighter market

Traders have been weighing the impact of a tightening natural gas market on the broader energy complex over winter, with Goldman Sachs Group Inc. predicting a demand boost could help crude advance to $90 a barrel if conditions are colder than normal. The focus has led to cross-commodity flows across the oil and gas markets, some of which have been unwound in recent days, helping push crude higher.

“With coal and gas rallying higher it is definitely spilling over into oil both through association,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “But also explicitly with substitution of oil for gas as gas is two times the price of oil.”

Prices
West Texas Intermediate fell 49 cents to $71.74 a barrel by 12:04 p.m. in London Brent was 0.7% lower to $75.68 a barrel

Manufacturing data in the euro-area and the U.K. was lower than expected for September. The figures are often a bellwether for diesel consumption.

Other market news:
Arctic oil and gas production is booming despite climate fears. As the natural gas crunch hits suppliers and consumers alike, OPEC nations are warning of the knock-on impact for oil markets. Syncrude Canada Ltd., a light crude producer majority-owned by Suncor Energy Inc., cut September supplies due to a mechanical disruption at its oil sands site.