Crude oil futures extend losses after overnight tumble on demand concerns

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Crude oil futures extended losses in midmorning Asian trade Aug. 2 after heavy losses in the overnight session, as fresh data continued to show weakening economic activity in the world’s largest economies while US producers were set to ramp up supply.

At 11:10 am Singapore time (0310 GMT), the ICE October Brent futures contract was down $1.18/b (1.18%) from the previous close at $98.85/b, while the NYMEX September light sweet crude contract fell 96 cents/b (1.02%) at $92.93/b.

Fundamentals in the oil markets took a bearish turn overnight as a raft of data in recent days signaled further weakening in economic activity in the world’s two largest economies US and China.

The US Institute for Supply Management’s manufacturing PMI fell to 52.8 last month, down from a reading of 53 in June and a low not seen since June 2020, data from ISM showed late Aug. 1.

This comes on the back of several China PMI reports over July 31 and Aug. 1 showing a contraction in the Chinese factory activity last month.

The US labor market remained tight, however, with Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, saying in a statement that “companies continue to hire at strong rates, with few indications of layoffs, hiring freezes or headcount reduction through attrition.”

“…the US’ manufacturing ISM retreated from 53.0 in June to 52.8 in July, with the new orders gauge falling further from 49.2 to 48.0 and the prices paid component also slumping from 78.5 to 60.0 which implied weakening demand conditions,” said OCBC analysts in an Aug. 2 note.

Vandana Hari, CEO of Vanda Insights, told S&P Global Commodity Insights Aug. 2 that oil prices were due for some profit-taking after an unsustainable rally in the week ended July 29.

“Crude was ripe for a pullback after last week’s rally, which was almost entirely on the back of exuberance in the broader financial markets. There was not much support from fundamentals to justify the 4-7% run-up in Brent and WTI prices,” Hari said.

US producers meanwhile have pledged to raise output as they report blockbuster results on the back of soaring oil prices this year.

Devon Energy, for one, raised its full-year 2022 production forecast by 3% to a range of 600,000-610,000 b/d of oil equivalent, owing partly to better-than-expected well results so far this year, the company said Aug. 1.

“Energy traders were getting used to constant headlines of production shortfalls, so the Devon news nudged the needle for the oil market getting closer to balance,” said OANDA senior market analyst Edward Moya.

Dubai crude swaps and intermonth spreads were lower in midmorning trade in Asia Aug. 2 from the previous close.

The October Dubai swap was pegged at $91.25/b at 11 am Singapore time (0300 GMT), down $2.87/b (3.05%) from the Aug. 1 Asian market close.

The September-October Dubai swap intermonth spread was pegged at $2.48/b at 11 am, down 31 cents/b over the same period, and the October-November intermonth spread was pegged at $1.61/b, down 33 cents/b.

The October Brent/Dubai EFS was pegged at $7.61/b, down 98 cents/b.