Oil drops biggest in two weeks on demand concerns, dollar

(Bloomberg) — Oil drop biggest in 2 weeks on a soft demand outlook in China, a strong U.S. dollar and fears of oversupply in the market.

Brent crude was trading below $72 after falling nearly 3% on Monday, while West Texas Intermediate was around $68. China’s latest measures to bolster its economy fell short of direct stimulus, and inflation remains weak. A gauge of the dollar rose to a one-year high as investors adjusted to Donald Trump’s victory, making oil more expensive for most buyers.

Crude has traded in a relatively tight range since the middle of last month, as traders tracked tensions in the Middle East, the White House race and OPEC+ decisions on production. The outlook remains weak, with global supply expected to outpace demand next year. OPEC’s monthly market report, to be released later on Tuesday, will shed more light on the balance of events.

Duration spreads point to a less tight market. While most gauges remain in a backwardated structure — near-term contracts are at a premium to longer-dated ones — spreads are narrowing. The difference between the two nearest Brent contracts was 19 percents a barrel in the backwardation, compared with 44 percents a month earlier.“Sentiment in the oil market remains largely bearish: a strong U.S. dollar, demand concerns and expectations of an easing of the oil balance are keeping pressure on prices,” said Warren Patterson, head of commodities strategy at ING Group NV. “For the outlook for next year to change, we either need to see OPEC+ delay the return of barrels until 2025, or the U.S. impose sanctions against Iran. OPEC’s monthly market report, due to be released later on Tuesday, will shed more light on the outlook for the balance.