Oil falls as global demand concerns come to the fore

(Bloomberg) — Oil fell on demand concerns at the fore as the U.S. Energy Department downplayed expectations for its plan to rebuild oil inventories and China considered allowing more fuel exports.

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West Texas Intermediate futures fell 3.8% to $85.10 a barrel. The Energy Department said its plan to replenish the nation’s emergency oil supply does not include a start-up price and is not likely to happen until after fiscal 2023. Earlier this week, prices rose after Bloomberg News reported that officials administration have discussed replenishing the strategic oil reserve should crude oil fall below $80, suggesting a potential bottom for prices.

“Sending mixed messages from the White House on the strategic reserve has pushed this market up and down,” said Phil Flynn, senior market analyst at Price Futures Group. “They are releasing a few trial balloons to see how their purchase will affect prices.”

Meanwhile, China is considering exporting more fuel, a move designed to boost the economy but also raising questions about how much it is reducing domestic consumption amid the Covid-19 lockdown. The news comes after the International Energy Agency said on Wednesday that the country would see its biggest drop in oil demand in more than three decades.

Oil is on track for its first quarterly loss in more than two years as central banks, including the Federal Reserve, tighten monetary policy to tame inflation, hurting the outlook for energy consumption. The retreat erased any gains seen since Russia’s invasion of Ukraine, with prices earlier this month hitting their lowest levels since January.

Refined prices have fallen sharply in the past few days due to a seasonal drop in demand as China prepares to increase fuel exports. Diesel’s quick spread narrowed to $2.77 from $7.45 earlier this month. The diesel crack, which measures diesel futures against crude oil contracts, fell to its lowest level in more than a month.

Diesel margins tight as market weighs possible exports from China (2)

Widely observed time spreads in the oil market are volatile. Brent’s forward spread – the difference between its two closest contracts – was $1.23 a barrel in the opposite direction. That compares to 90 cents a week ago, while the measure was above $2 as recently as last month.

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