US oil prices for prompt delivery traded at a discount this week for the first time since November, as easing political tensions in the Middle East pushed the market’s focus onto the coming post-winter lull in demand.
West Texas Intermediate futures held near $58 a barrel on Tuesday, briefly slipping to their lowest in six-weeks as concerns that the US and Iran were headed for conflict over the killing of an Iranian general continued to recede.
As the war fears abate, attention is turning to an anticipated pullback in US refiner demand as plants undergo maintenance once the scramble for heating fuels passes. February WTI contracts were about 2 cents cheaper than March, a condition known as contango that usually reflects weakness in the immediate market.
Despite the wave of selling, market fundamentals are showing some signs of strength. China’s oil imports reached a record last year, as a trade pact between Beijing and Washington that could improve demand appears near, and a cease-fire between duelling factions in Opec nation Libya has fallen apart.
Hedge funds and other speculators had piled up bullish wagers in the weeks after the Organization of Petroleum Exporting Countries and its partners announced surprise production cuts in early December, pushing their net-long position to an eight-month high of 288,430 contracts in the period to January 7, according to data from regulators.
“Positive fundamentals driven by economic green shoots and the US-China trade deal have been temporarily overshadowed by the need to reduce elevated – and now unprofitable – long positions held by funds,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen.
West Texas Intermediate crude for February delivery rose 22 cents to $58.30 a barrel on the New York Mercantile Exchange as of 11.17am in London. It fell to $57.72 earlier, the lowest intraday level since December 6, when Opec’s extra supply cutbacks were unveiled.
Brent futures for March settlement rose 35 cents to $64.55 a barrel on the ICE Futures Europe exchange after dropping 1.2% on Monday. The global benchmark crude traded at a $6.23 premium to WTI for the same month.
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