Oil collapses with Powell signaling earlier end of reduction – .

Oil collapses with Powell signaling earlier end of reduction – .

(Bloomberg) – Oil fell more than 5% after Federal Reserve Chairman Jerome Powell said the strength of the US economy could justify the end of central bank asset purchases earlier than expected next year.
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West Texas Intermediate crude futures slipped to session low on Tuesday after the comments, while global benchmark Brent also fell as part of a broader market pullback. At a Senate Banking Committee hearing in Washington, Powell said it was appropriate to discuss the conclusion of his purchases at his next meeting. Meanwhile, investors are also weighing warnings that the new omicron variant could withstand existing inoculations, which could affect OPEC + in deciding to change its production policy at its meeting later this week.

“It’s an effort to decrease economic activity, which strikes at the heart of the demand outlook,” said John Kilduff, founding partner of Again Capital LLC.

Oil collapsed nearly 20% in November, predicted for the biggest monthly loss since March 2020, when the onset of the pandemic crushed global consumption. Investors are now looking for clues as to the challenge posed by the omicron variant and how producers will respond. The Organization of the Petroleum Exporting Countries and its allies will decide on Thursday whether to halt a series of monthly supply hikes.

“There is great uncertainty about the impact of omicron on oil demand, which should keep oil prices volatile over the coming weeks,” said Giovanni Staunovo, analyst at UBS Group AG in Zurich.

The weakness has hit the Brent futures price structure that traders are looking for clues on supply and demand. Brent for the January offer is set to expire in a so-called contango on Tuesday, meaning the most immediate price is lower than the following month. This is a sign that short-term tightening expectations have dissipated since the variant first emerged in South Africa.

While prices on the expiration date are often very volatile, the wider futures curve has also weakened considerably, giving traders looking for yield by holding long positions less incentive to invest. While much of the curve stays back – where shorter-term prices trade above longer-term prices – the spreads between monthly contracts have narrowed.

Oil traders are also following talks this week to revive the 2015 Iran nuclear deal with world powers. Successful negotiations in Vienna could lift sanctions against the Iranian economy, leading to a resumption of official oil flows. The exchanges started positively on Monday, according to a senior European diplomat.

Macroeconomic data from Asia indicated improvements in major economies, a positive signal for energy demand. In China, the manufacturing purchasing managers’ index resumed expansion, while the output of Japanese factories edged up.

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