On Monday, November 21, the price of Brent crude oil fell below $87 a barrel as supply concerns eased. Brent crude for January slipped 0.3% or 28 cents to $87.34 a barrel, its lowest level since Sept. 27.
Brent price falls
Elsewhere, West Texas Intermediate (WTI) crude oil futures for December were trading at $80 a barrel, ahead of their expiration Monday. The more active January futures were trading at $79.90 a barrel, down 21 cents.
Since Sept. 27, both benchmarks have closed at their lowest levels while extending their losses for the second week. Over the past two months, Brent has fallen 9% and WTI 10% from their highs.
Crude supply tensions in Europe are easing ahead of the European Union’s Dec. 5 embargo on Russian crude. This is because refiners have started to build up their inventories in advance. This increased pressure on the physical crude market in the United States, Europe and Africa. The EU’s energy policy chief also said they expect regulations to be completed before the introduction of a G7 plan to cap the price of Russian crude on December 5.
Commenting on the low expiration of the December WTI contract, RBC Capital analyst Mike Tran said it indicated a sell-off in the paper market rather than true weakness in the physical market. In a note to investors, he wrote: “Tight global inventories don’t support traditional excess barrel justification for contango“.
He also added that spot markets in West Africa and the North Sea are far from strong, clearly indicating signs of distress.
Chinese oil market under scrutiny
Demand in China, one of the world’s largest crude importers, remains weak due to rising COVID-19 infections and related restrictions. On the other hand, Chinese refiners have been asked to reduce Saudi crude volumes in December and slow down purchases of Russian crude.
In addition, countries around the world are dealing with the rising U.S. dollar. A stronger dollar makes dollar-denominated oil more expensive for holders in other countries. Speaking on the developments, Dennis Kissler, senior vice president of trading at BOK Financial, said:
“It’s kind of a triple whammy. We’ve got COVID-19 cases up in China, interest rates continue to rise here in the U.S. and now we’ve got technical weakness in the market.”