Oil Swings as Muddy Economic Outlook Blunts Supply-Driven Gains

(Bloomberg) -- Oil fluctuated as uncertainty about the strength of demand and the direction of the global economy blunted recent supply-driven gains.

West Texas Intermediate traded below $79 a barrel after rallying around 2% over the previous two sessions. Fuel markets are slumping as refining margins shrink in Asia, with a hoped-for sharp rebound in China still proving elusive.

“The macroeconomic picture remains muddy,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S. “Markets are struggling for direction with a general level confusion seen across asset classes. Conflicting signals between OPEC+ production cuts and worries about an economic slowdown as seen through lower refinery margins” are keeping traders undecided about oil’s direction. 

Oil shipments from Iraq’s north and the country’s Kurdish region are still halted — causing some tankers to leave ports there empty and indicating a resumption isn’t likely in coming days. There are also supply risks in Sudan, where heavy fighting continues between rival groups. 

Russian exports remain resilient, however, despite Moscow’s earlier pledge to cut production, blunting the impact of the disruptions in the Middle East. Some Russian crude has been bought by Indian refiners above the Group of Seven-led price cap, according to India’s Oil Secretary Pankaj Jain. However, most transactions still remained below the limit, he said.

Crude is now hovering a few dollars above where it was just before the Organization of Petroleum Exporting Countries and its allies shook markets with a surprise output reduction at the beginning of April.

“The market correction is close to having run its course,” Hansen said. Brent dropping below $80 a barrel would likely push traders to start betting on additional cuts by OPEC and partners like Russia.

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