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The global oil market defies warnings as demand spikes

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(Bloomberg) — Global oil markets continue to rage on weak demand prospects. Most recently, a closely monitored gauge of Asian crude oil consumption hit a seven-month low as a spate of virus cases in China led to lockdown-like restrictions at the world’s largest importer.

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The premium of Oman futures on Dubai swaps fell below $1 a barrel on the Dubai Mercantile Exchange on Thursday. It is down almost 80% this month.

The oil market weakened in November, with much-watched statistics showing warning signs and futures prices falling. Among them, early spreads for both Brent oil and the main US-grade West Texas Intermediate have plunged into contango, a bearish price pattern pointing to near-term ample supply. As red flags spread, Brent futures fell to their lowest since January earlier this week.

Hopes for a recovery in Chinese oil demand are fading as daily Covid-19 cases hit record levels, prompting authorities to impose containment measures and curb movement. Amid the challenging conditions, some Chinese refiners are refraining from buying shipments of a preferred Russian grade, reducing demand as traders prepare to restrict Russian oil with EU sanctions from Dec. 5. Awaiting more details on the Group of Seven plan.

Brent futures posted a third weekly drop on Friday amid further signs from China that antivirus restrictions are tightening in major cities as authorities scramble to contain the Covid-19 outbreak. Beijing, the capital home to 22 million people, has begun a new round of restrictions, telling residents not to go outside.

The Oman futures-Dubai swap gauge, which fell below $1 a day in April, has typically yielded premiums of a few dollars since the invasion of Ukraine. It reached a high of $15 in March as many buyers began avoiding Russian oil, increasing the appeal of Middle Eastern crude and pushing premiums higher.

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With physical trading closed this month for most cargoes to be loaded in January, spot premiums for core Persian Gulf qualities fell sharply. While China’s Rongsheng Petrochemical Co bought nearly 7 million barrels in the middle of the month, that wasn’t enough to boost sentiment, traders in those grades said.

Meanwhile, another physical market indicator — the intermonthly Dubai swap — reversed contango on Friday, signaling a bearish outlook for December through April, data from PVM Oil Associates showed. Before this week, the last time he was in Contango was in April 2021.

Brent was trading at $85.72 a barrel on Friday, its lowest level since January, after hitting $82.31 on Monday.

(Beijing adds details about the outbreak in the fifth paragraph.)

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