Oil prices experienced a drop and traded near two-month lows on Monday after initially dropping by about $1 per barrel as supply concerns eased, but concerns over fuel demand from China and the strength of the US dollar kept prices down.
January Brent crude futures had decreased by 74 cents, or 0.8%, to $86.88 per barrel.
Before the contract’s expiration later on Monday, December, WTI crude futures for the United States were trading at $79.40 per barrel, down 68 cents or 0.9%. Last week, the more active January contract decreased by 59 cents, or 0.701%, to reach $79.521 per barrel.
Brent and WTI, the two benchmarks, finished Friday at their lowest levels since September 27, continuing their recent downward trend. Last week, as supply worries decreased, the front-month Brent crude futures spread shrunk significantly while WTI switched to a contango.
As refiners built up stocks in advance of the European Union’s embargo on Russian crude, which goes into effect on December 5, tight crude supplies in Europe have eased. This has put pressure on physical crude markets in Europe, the US, and Africa.
The US and Europe continued to compete with one another for barrels in the diesel markets. Despite nearly doubling from a year earlier, China’s diesel exports in October only reached 1.06M tonnes, a significant decrease from September’s 1.730M tonnes.
COVID regulations still constrain China.
The dollar has strengthened due to expectations of further interest rate increases elsewhere, increasing the cost of commodities denominated in dollars for investors.
Crude prices, a key driver of the Gulf’s financial markets, fell around $1 per barrel to near two-month lows as supply concerns eased, while concerns about Chinese fuel demand and dollar strength weighed on prices.
New COVID cases in China have remained close to April highs as the country battles outbreaks across the country and in major cities, prompting officials to advise residents to stay home.
European traders are rushing to fill tanks in the area with Russian diesel before the EU ban goes into effect in February because alternative sources are still scarce.
The import of Russian oil products, which the European Union heavily depends on for diesel, will be prohibited by February 5. This follows the implementation of a ban on Russian crude oil in December.
Russian diesel loading in the Amsterdam-Rotterdam-Antwerp storage space increased by 126% between November 1 and November 12, according to Pamela Munger, a senior market analyst at energy analysis firm Vortexa.
Due to a lack of readily available, reasonably priced alternatives, Russian diesel accounted for 44 percent of all road fuel imported into Europe in November, up from 39 percent in October. Although Europe is less dependent on Russian fuel than before Moscow invaded Ukraine in February, Russia continues to be the continent’s top supplier of diesel. Due to backwardation in Ice gasoil futures, the Russian gasoil entering ARA tanks will probably be consumed or sold quickly.
Some market participants believe the ICE move won’t have much impact because there is little gasoil in storage in the ARA, both for Russian and non-Russian gasoil, and delivered volumes are declining.