Oil fell for a second day as bullish impetus from OPEC+ production cuts faded against a weaker-than-expected demand picture. West Texas Intermediate dropped below $80.50 per barrel after weakening 2% on Monday, the biggest daily fall in four weeks. US shale production is seen higher in May, while there are signals that demand for diesel is slowing. Data on Tuesday showed Chinese factory output lagged forecasts in the first quarter, despite better than expected overall growth.
“The market is extremely torn, the short covering rally is behind us and a lot of action we’re seeing is down to positioning,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “We’re a bit more than a buck above key support so it would take additional negative news or price action for those levels to start being threatened.” Near-term spreads, recently inverted, have returned to a very small contango, an indication that market tightness has eased. In addition, crack spreads for diesel are at their lowest levels in a year, underscoring a weaker demand outlook. Still, many market watchers are betting China’s rebound from Covid-19 restrictions will lead to price gains over the rest of the year, helped by OPEC+ supply cuts set to start in May.
In the meantime, Russia’s crude exports bounced back above 3 million barrels a day last week, despite Moscow saying it had lowered output. One of the top consumers of the nation’s crude — India — said it would continue seeking imports, with Delhi and Moscow discussing joint re-insurance for shipments, Tass reported. Investors are also watching for an economic survey from the Federal Reserve and further comments from officials this week, which will provide insight on the health on the US economy and the likely path of monetary policy.