Oil steadied after slumping almost 6% last week as shrinking refining margins in Asia added to warning signs on the outlook for global demand.
(Bloomberg) — Oil steadied after slumping almost 6% last week as shrinking refining margins in Asia added to warning signs on the outlook for global demand.
West Texas Intermediate traded near $78 a barrel after dropping last week by the most since the banking crisis in March. Diesel and gasoline markets in Asia are slumping, leading some refiners to consider reducing operations. Still, China’s Golden Week holiday could spur increased jet fuel consumption from this weekend as travelers return to the skies.
“Concerns that the global economy is slowing down and that oil demand will consequently take a hit are at the forefront of investors’ minds,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Crude has wiped out nearly all of the rally seen earlier this month after the Organization of Petroleum Exporting Countries and its allies announced surprise new production cuts. Citigroup Inc. said it was taken aback that the magnitude of the pullback in Asian refining margins, which is partly attributable to ramp up of new Middle Eastern refineries.
“It’s unlikely that crude can bounce meaningfully absent crack expansion,” RBC Capital Markets LLC analysts including Michael Tran and Helima Croft said in a note, referring to the margins refiners make from processing crude. Even so, there are signs margins could soon halt their declines as China reduces petroleum-product exports and if Asian refineries cut run rates, they said.
Widely-watched timespreads are also signaling less bullishness on oil. The three-month spread for global benchmark Brent was 90 cents per barrel in backwardation, where near-term prices are higher than those further out, from $1.37 a barrel in backwardation a week ago.
The latest US figures on jobs, growth and inflation will be released later this week — some of the final marquee reports the Federal Reserve will have before its May policy meeting — offering clues on the demand outlook there. Some of the world’s biggest oil majors will also report results this week.
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–With assistance from Jason Scott.
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