Oil declines as traders weigh China demand, inflation outlook

Oil fell as traders grappled with the outlook for Chinese demand.

West Texas Intermediate slipped near US$87 a barrel, while global benchmark Brent traded below US$93. US economic data including unemployment insurance figures and retail sales on Thursday (Sep 15) painted a mixed picture of the world's largest economy, as markets continued to focus on the outlook for inflation and interest rates.

China's Chengdu was easing lockdown measures in parts of the city on Thursday, but the International Energy Agency said on Wednesday that the country will see its biggest drop in demand for oil in more than 3 decades this year. There are signs its refiners may be allowed to export more fuel, a move designed to boost the economy but which also raises questions over domestic consumption.

The US Department of Energy, meanwhile, said that its plan to restock the nation's emergency oil supply does not include a trigger price, and that such purchases are not likely to occur until after fiscal 2023. Bloomberg News reported on Tuesday that administration officials have discussed refilling the Strategic Petroleum Reserve, or SPR, should crude prices dip below US$80.

Oil is on course for the first quarterly loss in more than 2 years as central banks including the Federal Reserve tighten monetary policy to tame inflation, hurting the outlook for energy consumption. The retreat has erased all the gains seen in the wake of Russia's invasion of Ukraine, with prices earlier this month hitting the lowest level since January.

"China continues to dominate headlines across most markets," Keshav Lohiya, founder of consultant Oilytics said in a report. "Flat price remains in a tight range."

Widely-watched oil market time spreads have been volatile. Brent's prompt spread - the difference between its 2 nearest contracts - was US$1.04 a barrel in backwardation. That compared with 90 US cents a week ago, while the measure was more than US$2 as recently as last month. Bloomberg


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