Oil Slips After Hitting $75
(Bloomberg) -- Oil retreated after hitting $75 a barrel in London for the first time in over two years, as traders waited to see how OPEC+ will handle a rapidly tightening market.
Brent crude edged above $75 in Asian trading hours as price indicators and inventory data showed that demand continues to outstrip supply. The gains faltered as Russia -- which jointly leads the OPEC+ coalition with Saudi Arabia -- was said to consider proposing that the group increase production when it meets next week.
The market continues to firm in a bullish structure, with one timespread for West Texas Intermediate expanding to the widest backwardation in seven years. Genscape Inc. reported stockpiles at the key American storage hub of Cushing fell again last week from the lowest level since March 2020, according to people familiar.
Brent is also the most expensive against Middle Eastern oil in 21 months. That’s likely to boost the appetite of Asian refiners for barrels from the Persian Gulf linked to Dubai crude at the expense of Atlantic Basin grades.
The global crude benchmark has rallied more than 40% this year as a strong rebound from the pandemic in the U.S., China and Europe underpins increasing fuel consumption, although a virus comeback in parts of Asia is a reminder that the recovery will be uneven. Brent may even advance to $100 a barrel next year as travel demand rebounds, according to Bank of America Corp.
“Demand optimism is now well established and a tightening of the market is very much in the spotlight,” said Vandana Hari, the founder of Vanda Insights. “If there is a pause in this rally, it will likely come from the supply side.”
One bit of bearish news amid all the optimism is China’s crackdown on the nation’s private refiners. A second batch of 2021 crude import quotas allocated to the independents was about 35% less than last year, which will crimp flows into a sector that accounts for around a quarter of Chinese processing capacity.
The premium traders are placing on WTI for September delivery over October contracts touched $1.12 a barrel on Monday. Before this, the gap between the third- and fourth-closest contracts had only traded above $1 over two periods in the past 13 years -- in 2008 and from mid-2013 to mid-2014.
© 2021 Bloomberg L.P.
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