Dubai: Oil headed for a monthly loss as traders waited for more clues on the outlook for Chinese energy demand, a policy decision from the US Federal Reserve, and the latest guidance from cautious OPEC+ producers.
West Texas Intermediate eased toward $77 a barrel after retreating by more than 2 per cent in the week’s opening session. China’s reopening has boosted optimism that consumption will pick up as mobility improves. Still, oil’s latest move lower came despite data on Tuesday showing activity in Asia’s biggest economy has rebounded sharply.
While the Federal Reserve is expected to raise interest rates again in its first meeting of 2023 on Wednesday, a smaller hike of 25 basis points is widely expected. That, and comments from Chair Jerome Powell, may signal that the US central bank’s monetary tightening cycle could be close to complete.
Crude has endured a bumpy ride in January, and is now on course for a third consecutive monthly decline as concerns about a US slowdown overshadowed optimism on China. An advisory committee of ministers from the Organization of Petroleum Exporting Countries and its allies will review production policy later this week, although no change is expected. Its session comes ahead of the next round of sanctions and caps on Russian energy flows.
“The Fed is certainly the main driver of sentiment this week,” said Vandana Hari, founder of Vanda Insights. “Crude continues to track the broader financial markets as supply-demand fundamentals appear largely balanced.”
Still, bullish signals remain. Global benchmark Brent’s prompt spread “- the gap between its two nearest contracts “- has widened further in backwardation ahead of March’s expiration later Tuesday. The gap was 60 cents a barrel, up from 3 cents at the start of last week. Also, money managers increased their net-long Brent positions to the largest in nearly 11 months.