Oil Slumps 10% This Week as Oversupply Fears Send Bulls to Exits
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(Bloomberg) -- Oil dropped the most in a week since April as the full weight of languishing Chinese demand and more economic tightening radically shifted the market’s sentiment.
West Texas Intermediate fell 1.9% to settle just over $80 a barrel. US futures fell 10% this week, the most since Biden ordered a historic discharge of crude from the Strategic Reserves in April. Swelling Covid cases in China and aggressive monetary tightening by central banks have combined to erase all the gains earned last month when OPEC and its partners slashed production by 2 million barrels a day.
Pullbacks were evident along most of the oil-trading complex. On Friday, the US prompt-spread flipped into contango, a structure that signals oversupply, for the first time since last year. Meanwhile, a deteriorating market for physical barrels has also weighed on prices as demand for winter-delivery cargoes has weakened.
The collapsing gauges of market health sent bulls running for the exits. Hedge funds slashed bullish bets for Brent crude the most in four months. Money managers’ net-long positions on the international benchmark fell around 30,000 contracts, according to data from the U.S. Commodity Futures Trading Commission released Friday
Crude is trading below several key moving averages, sparking so-called technical-based selling. A further collapse in the market’s structure on Friday added to the selling.
Coronavirus cases in China have climbed to near their highest level of the pandemic, as authorities signal they’re preparing for even more infections. The increases will likely prove a test for any loosening of the country’s Covid rules.
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