Oil drops in doomsday trading as spreads show physical weakness

(Bloomberg) — Oil fell, settling near three-month lows as key market measures showed signs of weakness. Still, futures remained range-bound as traders await the next catalyst.

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Front-month futures for global benchmark Brent settled below $83 a barrel on Tuesday. Prices have traded in a tight $5 range this month.

“The lack of major, multi-quarter themes leads us to believe that range-bound volatility is likely here to stay,” RBC Capital Markets LLC analysts, including Helima Croft, said in a note.

The Brent spread promptly narrowed to 10 cents a barrel – the smallest premium for contracts since the first month of January – signaling that supply is outstripping demand. Additionally, Brent DFL – a measure of dated Brent against Brent futures – turned negative, a sign of weakness in the physical oil market.

Still, Brent futures are about 7% higher this year, supported by OPEC+ cuts, although prices have eased since mid-April. Crude oil price volatility fell to its lowest level in five years.

Traders are now turning their attention to the manufacturers’ group meeting in early June, where a shake-up of existing dashboards is expected. Meanwhile, geopolitical tensions continue, with ongoing drone attacks on Russian oil refineries and another Houthi attack on an oil tanker in the Red Sea over the weekend.

Meanwhile, in the US, the Biden administration announced on Tuesday that it was selling 1 million barrels of gasoline stocks from reserves, prompting gasoline futures to extend declines to session lows of around $2.49 a gallon.

While the sale is an attempt to lower gasoline prices during the summer season, analysts said 1 million barrels is unlikely to make a significant difference in the East Coast region, which has burned more than 3 million barrels of gasoline per day in June last year.

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Read more: US puts 1 million barrels of gasoline stockpile up for sale

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–Assisted by Jordan Fitzgerald.

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