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Futures Movers: Oil loses ground as traders weigh China demand worries

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Oil futures fell Monday as traders weighed the outlook for energy demand from China after a round of lackluster import data and the conclusion of the Communist Party’s national congress.

Price action

West Texas Intermediate crude for December delivery
CL.1,
+0.07%

CL00,
+0.07%

CLZ22,
+0.07%

fell 37 cents, or 0.4%, to $84.68 a barrel on the New York Mercantile Exchange.

December Brent crude
BRNZ22,
+0.17%
,
the global benchmark, was down 25 cents, or 0.3%, at $93.25 a barrel on ICE Futures Europe. January Brent
BRN00,
-2.10%

BRNF23,
+0.22%
,
the most actively traded contract, shed 15 cents, or 0.2%, to $91.19 a barrel.

Back on Nymex, November gasoline
RBX22,
+1.63%

rose 0.4% to $2.6732 a gallon, while November heating oil
HOX22,
+2.64%

ticked up 2.5% to $3.9263 a gallon.

November natural gas
NGX22,
+3.81%

climbed 3.2% to $5.117 per million British thermal units.

Market drivers

Oil rose last week, based on front-month contracts, with WTI up 0.5% and Brent rising 2%, after the Biden administration released another 15 million barrels of crude from the Strategic Petroleum Reserve. The administration also said it would begin replenishing the reserve when prices dipped toward $70 a barrel, helping to establish a floor that would give domestic producers confidence to boost production.

Data released Monday, a week behind schedule, showed that China’s September crude imports were down 2% from a year earlier, Reuters reported, as independent refiners slowed throughput.

Meanwhile, the Communist Party’s national congress awarded China President Xi Jinping a third five-year term as the party’s general secretary, doing away with a custom that has limited past leaders to 10 years in the top spot. The congress was seen consolidating Xi’s grip on power.

The congress saw no change announced in China’s zero-COVID policy, which has resulted in large shutdowns in an effort to control the spread of the virus and has been blamed for crimping crude demand. Hong Kong stocks saw their worst single-day performance since the 2008 financial crisis, with the Hang Seng Index
HSI,
-6.36%

dropping more than 6% to a new 13-year low.

“China’s zero-COVID approach looks set to continue until at least next spring,” said Harry Altham, energy analyst, EMEA & Asia for StoneX Group.

Concerns are primarily centered around the composition of President Xi’s new Standing Committee, which commentators describe as being made up of ‘loyalists’,” he wrote in Monday commentary. The line-up has fueled “speculation that tackling COVID and maintaining national security are being prioritized above economic considerations, which is depressing the oil demand outlook in the world’s second highest consuming nation.” 

Meanwhile, a rising U.S. dollar along with uncertainty over global demand continues to weigh on commodity prices, said Walid Koudmani, chief market analyst at XTB, in a note.

“From a technical point of view, the price of oil remains in a very interesting spot as both Brent and WTI are testing key support levels which managed to halt previous strong downward moves despite the price being below” longer-term moving averages, he wrote.

“Furthermore, the situation could continue to be volatile which could lead to another attempt to rebound from the current levels if sentiment and demand forecasts manage to improve despite the ongoing economic slowdown and troubling macroeconomic data,” Koudmani said. “In either case, a breakout in either direction could set the tone for the market in the short term in this time of increased volatility.”

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