Crude oil prices reached new 10-month highs despite worries about China’s economic outlook and central banks’ tight monetary policies. The Brent futures contract hit $94.95 per barrel, and the WTI contract reached $91.36 per barrel. These price levels were achieved despite reservations expressed by Saudi Energy Minister Prince Abdulaziz bin Salman about China’s future demand for oil. The world’s second-largest economy has been struggling to stimulate growth after the pandemic.
Saudi Arabian national oil company Aramco and the US International Energy Agency (IEA) have recently lowered their forecasts for global oil demand. The tightening of major central banks’ monetary policies to control inflation is a backdrop to the current price action. There are concerns that oil demand may be undermined if global growth slows down.
Despite these factors, crude oil prices continue to rise. One indication of underlying supply and demand dynamics in the oil market is backwardation and contango. Backwardation occurs when the futures contract closest to settlement is more expensive than the contract that settles after it. This suggests a willingness in the market to pay more for immediate delivery. Looking at the front two contracts, backwardation has recently accelerated.
Investors are closely monitoring stockpile data from the American Petroleum Institute (API) and the Energy Information Administration (EIA) for further insights into the balance of supply and demand in the market.
Overall, while concerns about China’s economy and central banks’ tightening policies persist, the current oil market structure appears to support higher prices.
– Daniel McCarthy on Twitter