Oman crude futures on the Dubai Mercantile Exchange are poised to dip below US$90 a barrel for the first time in more than two years as oil markets continue to slump in the face of a weaker global economy.
The front month Oman future, for December delivery, closed 90 cents lower yesterday at $90.23. It fell as low as $90.10 during the day, as volume picked up to 3 million trades, well above the recent average.
Late afternoon Brent crude futures in London were also down 90 cents at $91.20, while in New York, WTI futures were down $1.18 at $87.67.
Oil prices have been weakening since midsummer, when it became clear that many of the world’s largest economies were slowing. The trend was confirmed on Tuesday by the IMF, which reduced its forecast for global economic growth for next year to 3.8 per cent from its July forecast of 4 per cent.
But while oil prices generally were softening, market participants in Asia were scratching their heads about ChinaOil, the trading arm of two of China's largest state oil sector companies – CNPC and Sinochem – as it bought Dubai crude physical oil contracts furiously.
ChinaOil was not available for comment, but several oil market participants said the move appeared to be “a classic squeeze”, whereby ChinaOil had a large position in the derivatives market it needed to cover by buying physical oil contracts, which would cancel each other out at a loss to ChinaOil.
“It doesn’t mean there is some big new demand from China,” said one trader active in the market. “ChinaOil was the only one buying and everybody else was selling – Mercuria, Shell, BP, everybody.”
The buying by ChinaOil was not enough to buoy even the market it was buying in, such is the weight of the gloom.
amcauley@thenational.ae
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