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05.08.2022 12:16 PM
Crude trades below $89: causes, perspectives

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Oil incurred a deep weekly loss after collapsing to a six-month low on concerns that global demand is weakening.

West Texas Intermediate fell below $88 a barrel in early Asian trading, with the US benchmark down by more than 9% this week. According to the official data, US gasoline consumption has dropped, while crude inventories have increased. The decline came after Saudi Arabia had boosted its prices and OPEC+ had warned of scant spare capacity.

Brent's prompt spread, a gap between the nearest two contracts, was $1.62 a barrel in backwardation, down by more than $6 from a week ago.

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After a surge in the first five months of the year, crude's rally reversed. Meanwhile, losses have deepened this month after a fall in June and July. A sell-off that wiped off gains triggered by the Russia-Ukraine conflict will ease inflationary pressure that urged central banks, including the Federal Reserve, to hike rates.

"The market is still struggling on the back of a deteriorating demand picture in the US, with pressure on its refining capacity easing," Stephen Innes, managing partner at SPI Asset Management, said.

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A shift to aggressive monetary policy has stirred up concerns among investors about slower growth, which is a threat to energy use. The Bank of England has warned a recession in the United Kingdom could last for over a year. The US Federal Reserve says it will continue its aggressive monetary stance to fight record inflation.

China also shows signs of a slowdown, which is wrecking prospects for the largest crude importer. The latest data shows that China's factory activity has declined.

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Crude prices have fallen this week partially due to the fact that Libya will resume production after a period of turmoil. This move could help restore an estimated 1 million barrels per day of the country's oil output and ease tightness in the market.

On Wednesday, OPEC+ agreed on a modest rise in crude production in September and warned of scant spare capacity. Saudi Arabia raised oil prices for buyers in Asia to record levels.

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