Oil Slips as Investors Weigh China’s Lockdowns, Russian War
West Texas Intermediate futures dipped 0.5% after closing marginally higher Wednesday following a choppy session. China has pledged to bolster economic growth as the outbreak ravages larges parts of its economy. Russia said its oil output may drop by as much as 17% this year as buyers shun its crude.
The fuel market has also tightened as Europe relies more on U.S. imports to avoid Russian supply. American inventories of distillates — a category that includes diesel — dropped for a third week and are at the lowest since 2008, according to government data. Gasoline stockpiles fell for a fourth week.
The U.S. East Coast is bearing the brunt of the supply tightness in part because shrinking regional refining capacity has led to increased reliance on shipments from the U.S. Gulf Coast. However, Gulf Coast suppliers have been incentivized to export fuel overseas at a premium instead as buyers in Latin America and Europe are eager to replace lost Russian fuel.
The oil market has been gripped by a volatile period of trading since Russia’s invasion of Ukraine in late February and the more recent Covid-19 comeback in China. There are some signs that the outbreak is easing, but fuel demand in the world’s top crude importer is still expected to take a big hit this month.
Brent remains narrowly backwardated after nearing a bearish contango structure on Tuesday. The global benchmark’s prompt timespread was 32 cents a barrel in backwardation — a bullish pattern — compared with as high as $4.64 in early March just after the Russian invasion of Ukraine.
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