Global physical oil market weakens as recession jitters escalate

HOUSTON/LONDON, Aug 10 (Reuters) – Physical oil prices around the world have started to fall in line with futures, reflecting less concern over supply disruptions from Russia as well as heightened concerns over to a possible global economic slowdown.

“The market is very bearish right now. No one is in a rush to buy,” said a Singapore-based trader.

Analysts and traders say lower-than-normal U.S. gasoline demand during the peak summer driving season and sluggish factories in China indicate high prices are reducing consumption by the world‘s top oil consumers . This is a stark contrast to last month, when physical market activity suggested buyers were more concerned about securing supplies. Read more

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The market for quick oil supplies has slowed, traders told Reuters, with bids falling for crude from West Africa, the North Sea, the Mediterranean and the Middle East.

Prices rose in the spring on fears Russia’s invasion of Ukraine and Western sanctions could take millions of barrels off the market. This has not happened as Russian crude shipments are slightly above levels seen before the February invasion.

“The market is doing well,” said a physical crude trader.

In West Africa, crude prices have fallen since hitting historic highs in July. Bids for Nigerian light and sweet oil fell $1.50 a barrel and comparable Ghanaian crude down to $5 a barrel as European buying declined and refining margins fell.

Spot premiums for Oman crude hit their lowest level in more than a month and Dubai is at its lowest since late May. The North Sea Forties also hit depths last seen in nearly three months, while Azeri BTC crude oil hit levels not seen since late last year.

Chinese state refiners and South Korean refiners could buy as prices become attractive, but weak margins on weaker demand have reduced their buying power.

In Asia, spot premiums for US grades have halved, with WTI Midland now trading between $7 and $8 a barrel above Dubai. Cheaper US grades are putting pressure on locally preferred roughs, with Murban trading around $7.80 above Dubai quotes, down from $12 above last month.


There are still some scattered indications of strong demand. Global distillate refining margins remain relatively robust and there has been strong demand for discounted Russian oil in some Asian markets.

Russian exports as of August 9 were 400,000 barrels per day, more than immediately before its February 24 invasion of Ukraine, according to JP Morgan data.

“Russian supplies are going to stay at least for the foreseeable future, and the idea of ​​a super price cycle is now very unlikely,” said a second physical crude trader.

Crude futures hit $140 in March but fell well below $100 a barrel, with US futures trading around $92 and Brent around $97.

U.S. gasoline demand is about 5% lower on a four-week average since the start of the summer driving season, according to data from the U.S. Energy Information Administration (EIA).

The discount – the premium at which futures are traded over the following months – for Brent and U.S. oil fell from record highs in March to its lowest level since April. This implies that rapid supply is less tight.

The Brent six-month spread narrowed to $5.27 a barrel, its lowest since April.

“The super-lag is disappearing before our eyes here,” said Robert Yawger, director of energy futures at Mizuho Securities.

Traders employing spread trading strategies have been selling spreads and flattening the futures price curve, said Clay Seigle, global oil director at Rapidan Energy Group.

“Two things have changed since the pullout hit its climax: Fears that Russian oil is rapidly disappearing have subsided and confidence in the strength of the global economy has plummeted,” Seigle added.

Storage has been building at the major U.S. crude oil hub for six straight weeks after hitting multi-year lows last month. Read more

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Reporting by Arathy Somasekhar in Houston, Noah Browning and Alex Lawler in London and Muyu Xu in Singapore; Editing by David Gregorio

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