Oil endured a choppy session after slumping Wednesday, with investors fretting over global demand as China continues to struggle with Covid and central banks tighten monetary policy to fight inflation.
West Texas Intermediate traded near US$83 a barrel after collapsing by almost 6% on Wednesday to the lowest level since January. Several Chinese centers face anti-virus lockdowns, including the megacity of Chengdu, threatening energy demand in the world’s biggest importer.
Crude’s meltdown on Wednesday led the US benchmark to settle below its nine-day relative strength index, a technical signal for traders that crude was in oversold territory and that a reversal may be coming.
“Crude is trying to bounce off the lowest levels since March as the last two weeks’ selloff in prices stemmed from a perceived slowdown in both Asia and Europe with expectations that demand destruction is coming,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Crude’s tumble in recent days has seen it break out of a trading range it had been in for much of the summer.
Futures have been trading below key moving averages and forming bearish technical patterns that have compounded the recent selloff.
Alongside that, key timespreads are pointing to a softer market than they were several months ago.
“The rising US dollar to multi-year highs has been a big bearish factor to crude and with the Fed set to raise interest rates again, the strength looks to continue,” said Kissler. That along with China locking back down has “spooked” the energy sector.
In its latest market snapshot, the American Petroleum Institute reported crude stockpiles dropped at the largest storage hub in Cushing, Oklahoma.
Further insight will come later Thursday from the EIA’s weekly breakdown of supply and demand.
The widely-watched prompt timespread, an indicator of market tightness, rose to trade near 50 cents in backwardation, after closing at its weakest level since January on Wednesday.
Oil’s deep loss on Wednesday came despite several supportive market factors.
Russian President Vladimir Putin said the country would not supply energy to any nations that backed a planned US-led price cap on the nation’s crude.
In addition, the Energy Information Administration raised its outlook for global oil demand, while also cutting the forecast for US supply.