Oil futures: Brent sinks below $86/b as US business activity contracts

24 Jan 2023

Quantum Commodity Intelligence - Crude oil futures pulled back from earlier seven-week highs Tuesday, as a contraction in US business activity for the seventh straight month in January sent out a reminder that recessionary fears are still a market driver for 2023.

March ICE Brent futures were trading at $85.98/b (2015 GMT), compared to the day's high of $88.71/b and Monday's settle of $88.19/b.

At the same time, Mar23 NYMEX WTI was trading $79.92/b versus Monday's settle of $81.62/b.  

An S&P survey revealed that US businesses activity contracted again in January as demand for goods and services fell, although the survey did show some signs of modest improvement.

The S&P Global "flash" U.S. services sector index rose to a three-month high of 46.6 from 44.7 in December. Any number below 50 suggests a contracting economy.

Prices were higher earlier as the increasingly bullish outlook for China was further boosted by research showing that the country has avoided further lockdowns despite the rapid spread of Covid following the lifting of restrictions.

"Expectations of strong demand from China helped push crude oil higher. The week-long Spring Festival has seen record numbers of people travel across the country. Officials estimate 2.1bn trips will be taken, double that seen last year," said ANZ commodity strategist Daniel Hynes.


More than 90% of Beijing's 22 million population will have been infected with coronavirus by the end of this month, according to an estimate by researchers from the University of Hong Kong.

Around 76% of Beijing's population had contracted Covid-19 as of 22 December and it was expected to reach 92% by 21 January, according to the study.

Prices also found support early in the week after the latest data revealed money managers extended long Brent crude positions for the sixth straight week, up 29 million barrels to 259.8 million barrels as of 17 January, according to the latest exchange data, and cut short positions by a similar 27.8 million barrels.

That pushed net long positions up 56.9 million barrels – the biggest swing in bullish bets for at least a decade – to a 10-week high of 203.2 million barrels.

The firmer outlook was also reflected in European refined products' forward curves, with spreads strengthening amid signs of a growing shortfall on prompt supplies as the clock ticks down to sanctions on Russian exports.

Timespreads on ULSD cargo M1-M2 swaps hit $33/mt Friday, up around a third since the start of the year and their widest since November.

Likewise, spreads on jet fuel doubled over the same period, with M1-M2 backwardation on ARA barges and cargoes hitting $40/mt in recent sessions for the first time since last September.