Oil dropped by more than $2 a barrel on Friday, on track for a second weekly decline, due to concern about weakened demand in China and further increases to U.S. interest rates.
Brent crude was down $2.80, or 3.1%, at $86.97 a barrel by 11:48 a.m. EST (1648 GMT), having touched its lowest since Sept. 28 at $85.80. U.S. West Texas Intermediate (WTI) crude was down $2.79, or 3.4%, at $78.85.
Both benchmarks are heading for a second weekly loss, with Brent on track for about a 9% decline and WTI heading for a 10.5%.
As part of the rout, the market structure of both oil benchmarks shifted in ways that reflect dwindling supply concerns.
Crude came close to record highs earlier this year as Russia's invasion of Ukraine added to those worries. In addition to that, the front-month futures contract soared to a gigantic premium over later-dated contracts, a signal that people were worried about the immediate availability of oil and were willing to pay handsomely to secure supply.
Those supply concerns are waning. The current WTI contract is now trading at a discount to the second month, a structure known as contango, for the first time since 2021, Refinitiv Eikon data showed.
This condition will also benefit those looking to put more oil in inventories for later, especially with stocks still at low levels.
"The deeper the contango, the more likely the market will put those barrels in storage," said Bob Yawger, director of energy futures at Mizuho in New York.
Brent was still in the opposite structure, backwardation, though the premium of nearby Brent over barrels loading in six months fell as low as $3 a barrel, the lowest since April.
China, which sources say is looking to slow crude imports from some exporters, has seen a rise in COVID-19 cases while hopes for less aggressive U.S. rate hikes have been dented by remarks from some Federal Reserve officials this week.
"As things stand, bullish price drivers are in short supply," said Stephen Brennock of oil broker PVM. "Yet with the EU embargo on Russian crude less than three weeks away, oil prices could still end the year with a bang."
As the European Union's ban on Russian crude looms on Dec. 5, the prospect of more barrels from Russia pressuring the spot crude oil market also weighed on futures prices.
Recession concerns have dominated this week even with a tightening of supply by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+.
"On the demand side, there are concerns about an economic slowdown," said Avatrade's Naeem Aslam. "The path of least resistance seems skewed to the downside."
The Fed is expected to raise rates by a smaller 50 basis points (bps) at its Dec. 13-14 policy meeting after four consecutive 75 bps hikes, a Reuters poll showed.
OPEC+, which began a new round of supply cuts in November, holds a policy meeting on Dec. 4.
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