Oil steadies below $70 after demand concerns intensify rout

Oil steadied after fast-escalating concerns about global demand ignited a swift and powerful selloff that drove Brent crude below $70 a barrel for the first time in more than two years.

The benchmark has sunk by almost a fifth this quarter on concerns that slowing growth in the US and China, the leading consumers, will hurt consumption at a time of robust and expanding supplies. Market metrics — including the shape of the entire futures curve — indicate conditions fast becoming far less tight.

Oil’s retreat has already forced OPEC+ to postpone an output hike, stoking investor concern that the extra barrels could be still be brought to the market closer to 2025. The International Energy Agency — which will issue a revised monthly outlook later this week — said in August the market risked higher inventories next year even if the cartel canceled the output increase.“The continued weakness in the oil market will be alarming to OPEC+, and in order to soothe the market, the group needs to announce policy to tackle the expected surplus in 2025,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Even if the group sticks to cuts, compliance is likely to slip.”The slump will be a tailwind for central bankers as they press home their fight against inflation, with the Federal Reserve expected to start reducing interest rates next week given easing price pressures and signs of a softening labor market. It’ll also be a boon for nations that rely on crude imports to power their economies, such as China and Japan.
Brent — which traded above $69 a barrel — suffered a tumultuous session on Tuesday as prices slid by more than 3% in a fresh wave of selling pressure following a steep decline last week. It ticked modestly higher on Wednesday after the American Petroleum Institute estimated US commercial stockpiles fell by about 2.8 million barrels last week, according to people familiar with the figures. Official data on are due later on Wednesday.
On the technical side, Brent’s tumble on Tuesday pushed its 14-day relative strength index — a measure of the speed and magnitude of an asset’s move — below 30, a level seen by some traders as potentially signaling a near-term rebound.
“Technicals suggest that the market is entering oversold territory,” said ING’s Patterson. “However, sentiment is clearly still bearish.”

Traders are also tracking Hurricane Francine, which is expected to make landfall in Louisiana later Wednesday. With Chevron Corp. and Shell Plc among companies taking measures, federal officials said the total amount of shut-in oil represented nearly a quarter of crude production in the Gulf of Mexico. In addition, eight refineries may lie in the system’s path.

Executives, traders and hedge funds gathered in Singapore this week for the Asia Pacific Petroleum Conference have been mostly bearish about crude’s prospects. Goldman Sachs Group Inc. analyst Daan Struyven said the bank expected the market to flip to a glut as soon as November or early December.

Brent’s prompt spread — the difference between its two nearest contracts — was 39 cents a barrel in backwardation. While that’s still a bullish pattern — with the nearest price trading at a premium to the next in sequence — it compares with a gap of 92 cents a month ago