Wednesday, May 18

Oil Extends Retreat as China Battles Worsening Virus Outbreak

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(Bloomberg) — Oil fell as traders tracked a worsening Covid-19 outbreak in China and prospects for additional crude releases from government stockpiles.

West Texas Intermediate dropped toward $98 a barrel in early Asian trade after losing 13% last week. China is grappling with a renewed coronavirus outbreak that is harming crude demand. Shanghai’s 25 million residents are almost all under some form of lockdown as the country added more than 13,000 daily infections, with state media reporting a case infected with a new subtype.

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The US benchmark sank the most in two years last week after the Biden administration announced a massive release of crude from strategic reserves to combat energy prices that have been buoyed by Russia’s invasion of Ukraine. Allies within the International Energy Agency will also tap stockpiles, with details expected this week. After the US move, Goldman Sachs Group Inc. pared price forecasts while remaining broadly positive on oil’s outlook.

Traders were also tracking stop-start talks to restore a 2015 nuclear accord with Iran after Tehran said that it’s close to reaching an agreement with the US If concluded, a pact may boost official Iranian crude exports.

Although prices have eased, leading players remain wary. Vitol Group, the biggest independent crude trader, said at the weekend that prices had fallen to levels that didn’t reflect risks including disruptions to Russian exports.

In addition, although the Organization of Petroleum Exporting Countries and its allies including Russia have been easing curbs on output imposed during the pandemic, some producers have been unable to meet their quotas in full.

While oil markets remain in backwardation, a bullish pattern, differentials have narrowed. Brent’s prompt spread — the gap between its two nearest contracts — was $1.53 a barrel in backwardation, about half the level a week ago.

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