Crude oil futures start week on bearish note amid weak economic indicators

Crude oil futures were lower in mid-morning Asian trade July 25 as signs of weakening economic activity in the West continued to weigh on oil prices.

At 10:16 am Singapore time (0216 GMT), the ICE September Brent futures contract was down 65 cents/b (0.63%) from the previous close at $102.55/b, while the NYMEX September light sweet crude contract was 84 cents/b (0.89%) lower at $93.86/b.

Preliminary PMI data released late in the previous week ended July 22 showed economic activity in the US and Eurozone falling into contraction last month, in a sign that soaring energy prices and spillover effects from the Ukraine war were taking an increasingly heavy toll.

US oil prices in particular have underperformed European benchmark ICE Brent, with latest implied demand and inventory figures from the Energy Information Administration last week indicating a sharp slowdown in gasoline demand.

The front-month September NYMEX crude discount to ICE Brent was pegged at $8.63/b at 10 am Singapore time. This was the largest the discount has been since April 2020, according to S&P Global Commodity Insights’ record of Singapore close prices.

Investors this week will be closely watching the US Federal Reserve’s open market committee meeting over July 26-27, where it is expected to hike interest rates by another 75 basis points.

“Market players have priced in the possibility that the Fed will hike faster and pause earlier, with a 75 bps likely this week, followed by another 50 bps and subsequently two 25 bps hikes to end the year, but the Fed’s assessment of the recent soft patch and inflationary outlook will be key going ahead,” said OCBC Treasury Research analysts in a July 25 note.

Analysts indicated that the physical supply picture remains tight, with prompt ICE Brent time spreads still stuck in a wide backwardation.

“The strength in the prompt ICE time spread shows that the market is still tight and is expected to remain so for the foreseeable future, largely driven by expectations that Russian oil supply will edge lower in the months ahead as widely expected plans for a price cap on Russian oil may have the opposite effect on oil prices than hoped for,” said ING’s Head of Commodities Strategy Warren Patterson.

As of 10 am Singapore time, the M1-M2 ICE Brent time spread was pegged at $4.95/b.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia July 25 from the previous close.

The September Dubai swap was pegged at $91.98/b at 10 am Singapore time (0200 GMT), down $1.34/b (1.44%) from the July 22 Asian market close.

The August-September Dubai swap intermonth spread was pegged at $3.70/b at 10 am, down 3 cents/b over the same period, and the September-October intermonth spread was pegged at $2.75/b, down 7 cents/b.

The September Brent/Dubai EFS was pegged at $10.52/b, down 6 cents/b.

Source: Spglobal.com