Oil prolongs concerns over falling demand as geopolitical risks ease

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(Bloomberg) – Oil extended losses as investors focused on worries about the demand outlook after geopolitical tensions eased.

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West Texas Intermediate slid to $84 a barrel after closing down 1.5% on Wednesday. China is grappling with a rise in Covid cases, while JPMorgan Chase & Co. predicts the United States will enter a “mild” recession next year due to rising interest rates. A stronger dollar added to the bearish headwinds.

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NATO and Polish leaders said there was no indication a missile that hit the country’s border with Ukraine was an intentional attack by Russia, allaying fears it could lead to an escalation of war in Europe. The Druzhba pipeline that carries Russian oil west has also restarted after a power outage.

There was little price reaction after US government data showed commercial inventories fell by 5.4 million barrels last week, the biggest weekly drop since August. Yet the outlook for global supply remains uncertain, with the European Union set to sanction flows of Russian crude from December.

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“As geopolitical risks have eased somewhat, demand concerns have once again taken center stage in the oil market,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Chinese demand remains a concern.”

China’s daily Covid cases rose again on Wednesday and are approaching the record high reached during Shanghai’s worst massive outbreak earlier this year. Oil prices remain under pressure as the country continues to lock down entire regions, according to a note from Citigroup Inc.

The widely watched time gaps remain in a bullish backward pattern, but they have narrowed over the past few sessions. Brent’s quick spread – the difference between its two closest contracts – was $1.19 a barrel forward, down from $1.86 at the start of the month.

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