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Oil Extends Losing Streak With Markets Shaken by Inflation Risk


(Bloomberg) Oil declined in New York and is set to extend its stretch of daily losses to the longest in over a year as inflation concerns rattled broader sentiment and physical markets in Asia cooled.West Texas Intermediate tumbled as much as 4.2% on Thursday. The dollar rose and U.S. equities declined as inflation concerns filtered through broader markets, weighing on oil prices. A stronger dollar weakens the appeal of commodities prices in the currency.Futures have backtracked after Brent rallied above $71 a barrel and U.S. crude topped $67 earlier this month as the market for physical barrels in Asia shows signs of weakness and a shaky Covid-19 vaccine rollout in parts of the world points to an uneven demand recovery. There’s muted buying from some in China and spot differentials for cargoes to be loaded in April or May from the Middle East and Russia have dipped.

“Demand hasn’t gotten as far back to normal as we expected, with the vaccine news out of Europe definitely concerning in terms of short-term demand,” said Michael Lynch, president of Strategic Energy & Economic Research. “That’s making people think that the time for $70 Brent has not yet come.”

Oil extended its retreat amid an uneven near-term demand recovery

Beyond headline prices, crude’s nearest timespreads are reflecting the fragile near-term outlook. WTI’s so-called prompt spread flipped into a bearish contango last week and Brent’s backwardation — a structure signaling tighter supplies — is weakening.

“The sentiment has changed,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “Short-term supply and demand considerations are temporarily casting a shadow over the bright future that is likely to arrive in the third quarter of the year.”

Prices:
  • WTI for April delivery slid $1.77 to $62.83 a barrel at 10:14 a.m. in New York, poised to fall for a fifth straight day
  • Brent for May settlement fell $1.84 to $66.16 a barrel
Brent's futures spread has weakened in recent days

The global recovery from the pandemic remains uneven. Among positive signals, Japan’s government will recommend that the Tokyo area emergency be lifted on March 21. But in Brazil, Covid-19 cases are expanding by record numbers, crimping activity, while in the U.K., delayed imports of the AstraZeneca vaccine will cut supply this month.

Related Coverage:
  • Signs of inflation are growing in some corners of the oil market. Plastic prices have hit all-time highs as consumer usage rebounds, while U.S. retail gasoline prices are on a record run of gains.
  • China’s diesel exports jumped last month as local demand slumped due to a slowdown in factory activity over the Lunar New Year.
  • One of the fastest-growing corners of China’s energy market is facing a potentially devastating blow as Xi Jinping’s government increases scrutiny of high-emission fuels.


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