Key market gauges have softened in recent days, too. The nearest timespread for US crude — which indicates how scarce supply is — fell to its weakest level in seven weeks. Brent’s futures curve has also turned lower in recent days.
China’s economy slowed in October as virus outbreaks hurt consumer sentiment and disrupted business activity. While the government has since eased some of its Covid Zero measures, infections continue to climb across the country.
Crude has lost about a third of its value since early June as a deepening economic slowdown weighed on demand. Still, the Organization of Petroleum Exporting Countries and its allies have started trimming output and European Union sanctions on Russia will curb flows from December, clouding the supply outlook.
“Renewed focus on China’s virus count and conflicting news between OPEC and IEA with the market siding with OPEC’s ‘not so tight’ message,” is driving prices, according to Ole Hansen, head of commodities strategy at Saxo Bank. “Difficult to pinpoint what else is driving it apart from recently established longs from last week’s China-led rally being forced to reduce exposure.”
Oil inventories in developed nations have sunk to the lowest since 2004, leaving global markets vulnerable as sanctions on Russian exports take effect, according to the IEA’s monthly report. The agency also said that Russian oil output could take a hit next year, but that demand destruction for diesel is also increasingly probable.