SINGAPORE (BLOOMBERG) - Oil headed for a third monthly drop on Wednesday (Aug 31), the longest declining streak in more than two years, on prospects for slower global growth as central banks tighten policy and China presses on with its zero-Covid strategy.
West Texas Intermediate, the US oil benchmark, which traded above US$92 a barrel after tumbling on Tuesday, has shed more than 6 per cent in August, hitting the lowest since January mid-month.
In the United States, the Federal Reserve has been raising rates aggressively to quell inflation, while Europe is gripped by an energy crisis that may herald a recession. In Asia, growth in China, the top oil importer, has slowed.
Traders are also tracking an array of supply-related issues. While there has been significant unrest in both Libya and Iraq in recent days, oil output in both Opec members appears to be unaffected so far. Separately, talks to revive an Iranian nuclear deal that may unlock greater crude exports have dragged on.
Oil’s decline in August marks the latest chapter in what’s been a tumultuous year, with prices driven higher in the first half by Russia’s invasion of Ukraine, then undermined as central banks shifted tack and Moscow managed to keep most exports flowing.
Crude’s recent slump prompted Opec+ heavyweight Saudi Arabia to raise the possibility the alliance could cut output, although Russian media reported the grouping wasn’t discussing such a move at present.
The main theme “is pessimistic macro-economic expectations, coupled with tight supply from low inventories,” said Mr Zhou Mi, an analyst at Chaos Research Institute in Shanghai.
Data on Wednesday highlighted the challenges facing China. Factory activity contracted in August for a second month, with the economy taking a hit from Covid-19 outbreaks, a property market crisis and power shortages.
Commodities including crude oil have also faced a headwind this month from gains in the dollar, which makes raw materials more expensive for holders outside the US. The Bloomberg Dollar Spot Index has climbed by more than 2 per cent in August as the Federal Reserve commits to higher interest rates, with the gauge approaching a record high that was hit in July.
In another possible supply boost, Venezuela's oil minister said the country was ready to move ahead with business with the oil major Chevron Corp, adding that progress to relaunch the operations depends on licences from Washington.
With most producers already operating at or above capacity and growing signs that the global economy may be slowing, some reduction of supply is looking increasingly likely in the coming months, said Mr Matt Weller, head of research at FOREX.com and City Index.
US crude stockpiles rose, while fuel stocks fell in the latest week, according to market sources citing American Petroleum Institute figures on Tuesday.
Crude stocks rose by about 593,000 barrels for the week ended Aug 26, according to the data. US crude oil stockpiles are likely to have fallen in the week to Aug 26, a preliminary Reuters poll showed on Monday.
US gasoline futures settled at US$2.6944 per gallon on Tuesday, its lowest close since Feb 18, before Russia's invasion of Ukraine.
