SINGAPORE: Oil prices surged near a two-month low on Monday as supply fears eased, while concerns over China’s fuel demand and rising interest rates weighed on prices.
Brent crude oil futures for January were down 28 cents, or 0.3 percent, to $87.34 a barrel by 0103 GMT, after settling at their lowest level since September 27.
US West Texas Intermediate (WTI) crude oil futures for December were $80 a barrel, down 8 cents ahead of contract expiration later Monday. January’s more active contract fell 21 cents to $79.90 a barrel.
Both benchmarks closed at their lowest levels since Sept. 27 on Friday, extending the losses for a second week, with Brent down 9 percent and WTI down 10 percent.
The spread on first month Brent crude oil futures narrowed sharply last week as WTI turned into a contango, reflecting easing supply concerns.
Tight crude supplies in Europe have eased as refiners stockpiled ahead of the European Union’s embargo on Russian crude on Dec. 5, straining physical crude oil markets in Europe, Africa and the United States to stand.
The EU’s head of energy policy told Reuters the EU expected its regulations to be ready in time for the introduction of a G7 plan to limit the price of Russian crude oil on Dec. 5.
RBC Capital analyst Mike Tran said the weak WTI contract expiration in December indicates selling in the paper market rather than actual physical market weakness.
“Tight global supplies do not support the traditional rationale for excess barrels for contango,” he said in a note.
While indicators for the North Sea and West African spot market are far from strong, they also show no signs of distress, he added.
Diesel markets remained tight and Europe and the United States battled for barrels. While China nearly doubled its diesel exports in October from a year earlier to 1.06 million tons, the volume was well below September’s 1.73 million tons.
Demand at the world’s largest crude importer remains bogged down by COVID-19 restrictions, while expectations of further interest rate hikes elsewhere have propelled the greenback, making dollar-denominated commodities more expensive for investors.