(Bloomberg) — Oil slid by the most since August, falling from overbought territory amid concerns around global economic growth.
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Futures in New York declined as much as 3.2% on Thursday after holding at the highest since 2014 this week. Technical indicators have signaled oil has been due for a pullback since earlier this month. Meanwhile, the resurgence of lockdowns in Eastern Europe and Russia due to rising coronavirus cases are threatening the global economic recovery that has buoyed commodities and energy markets.
The possibility of a winter with economic lockdowns worldwide complicates the bullish economic outlook, said Ed Moya, senior market analyst at Oanda Corp. “There’s been a little bit of loss of momentum and that’s the real pain of the global economy.”
Oil has held at highest levels since 2014 with supplies depleting as coal and natural gas shortages drive greater crude consumption. Saudi Arabia said any extra oil from OPEC+ would do little to tame the surging cost of gas, predicting demand may rise as much as 600,000 barrels a day if the northern hemisphere’s winter is colder than normal.
The oil market is tightening but neither additional supply from OPEC+ nor a U.S. Strategic Petroleum Reserve release will meet the growing demand for sweet grades, Energy Aspects Ltd. said in a note this week.
West Texas Intermediate crude’s 14-day Relative Strength Index has been above 70 since early October, signaling the commodity is overbought.
Despite Thursday’s price decline, the structure of the U.S. crude market is holding up as stockpiles continue to drain at the key storage hub of Cushing, Oklahoma. Nearby West Texas Intermediate crude spreads surged to a three-year high, and the closely-watched spread between the nearest December contracts is at the strongest since 2013.
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