(Bloomberg) — Oil steadied after fast-escalating concerns about global demand ignited a swift and powerful selloff that drove Brent below $70 a barrel for the first time in more than two years.
The global benchmark has plunged by almost a fifth so far this quarter on concerns that slowing growth in the US and China, the leading consumers, will crimp consumption at a time of robust and expanding supplies. Market metrics — including the shape of the entire futures curve — indicate conditions fast becoming far less tight.
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Oil’s retreat has already forced OPEC+ to postpone an output hike, stoking investor concern that the additional barrels could be still be brought to the market closer to 2025. On Thursday, the International Energy Agency will issue its monthly outlook, including estimates for worldwide supply and demand.
Still, the slump will be a tailwind for central bankers around the world as they press home their fight against inflation, with the Federal Reserve expected to start reducing interest rates next week given easing price pressures and signs of a softening labor market. It’ll also be a boon for nations that rely on crude imports to power their economies, such as China and Japan.
Brent — which was just above $69 a barrel in Asian trading — suffered a tumultuous session on Tuesday as prices slid by more than 3% in a fresh wave of selling pressure following a steep decline last week. It ticked modestly higher on Wednesday after the American Petroleum Institute estimated US commercial stockpiles fell by about 2.8 million barrels last week, according to people familiar with the figures. Official data on are due later on Wednesday.
Traders are also tracking the progress of Hurricane Francine, which is expected to make landfall in Louisiana later Wednesday. With Chevron Corp. and Shell Plc among companies taking measures, federal officials said the total amount of shut-in oil represented nearly a quarter of crude production in the Gulf of Mexico. In addition, eight refineries may lie in the system’s path.
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Executives, traders and hedge funds gathered in Singapore this week for the Asia Pacific Petroleum Conference have been mostly bearish about crude’s prospects. Goldman Sachs Group Inc. analyst Daan Struyven said the bank expected the market to flip to a glut as soon as November or early December.
Brent’s prompt spread — the difference between its two nearest contracts — has narrowed to 38 cents a barrel in backwardation. While that’s still a bullish pattern — with the nearest price trading at a premium to the next in sequence — it compares with a gap of 92 cents a month ago.
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