Oil slides amid broader commodity rout as volatility returns

Oil extended losses toward $64 a barrel, swept up in a broader commodity rout as volatility returned to the market.

Futures in New York declined after swinging between gains and losses earlier with commodities from copper to iron ore all sinking. The oil market had started the week strongly – surging to the highest level since October 2018 – after an attack on a major Saudi Arabian crude export terminal, but a rising US dollar wiped out the advance and prices ended the session lower.

Oil has rallied this year amid output cuts from Saudi Arabia and OPEC+, and an improving demand outlook with the rollout of Covid-19 vaccines. Prompt timespreads have firmed in a bullish backwardation structure, helping to unwind bloated inventories built up during the coronavirus pandemic, while investment banks continue to raise their crude price forecasts.

The assault on the Saudi terminal appears to have had no impact on shipments, but it’s the latest in a series of incidents amid a rapidly tightening market. US refineries, meanwhile, are resuming operations after the unprecedented cold blast last month and should start consuming more crude, and gasoline demand in California – the biggest American state – is picking up.

“There’s a number of bullish signals on both the supply and demand side,” said Will Yun, a senior commodities analyst at VI Investment Corp. in Seoul. “However, upward momentum will be volatile and bumpy.”

Prices

• West Texas Intermediate for April delivery lost 0.9 per cent to $64.45 a barrel on the New York Mercantile Exchange at 7.31am London time after sliding the most in more than a week Monday.
• Brent for May settlement fell 0.7 per cent to $67.74 on the ICE Futures Europe exchange after losing 1.6 per cent in the previous session.

US gasoline and distillate stockpiles – a category that includes diesel – declined last week, according to the median estimate in a Bloomberg survey before government data on Wednesday. Crude inventories, however, expanded for a third week, the poll shows.

“I wouldn’t rule out some more pullback,” said Vandana Hari, the founder of Vanda Insights in Singapore. “A settlement above $69 for Brent, even after the surprising OPEC+ decision, seemed like an over-reaction.”