Oil futures declined Monday, as worries over the potential collapse of China property giant Evergrande dragged down global financial markets and fueled strength in the U.S. dollar.
“Oil markets fell in sympathy with the broader financial markets, since investors are looking…to avoid risky assets,” said Manish Raj, chief financial officer at Velandera Energy Partners.
There is a “plethora of macro level risks, including the fear of rumbling real estate trouble in China” and a surge in the U.S. dollar, he told MarketWatch.
See: Evergrande fears send stock market tumbling: Here’s what investors need to know about the China property giant
West Texas Intermediate crude for October delivery CLV21 fell $1.68, or 2.3%, to settle at $70.29 a barrel on the New York Mercantile Exchange, ahead of the contract’s expiration at the end of Tuesday’s trading session. November WTI CL00, 2.14% CLX21, 2.13%, the most actively traded contract, also lost $1.68, or 2.3%, at $70.14 a barrel.
November Brent crude BRN00, 2.06% BRNX21, 2.06%, the global benchmark, declined by $1.42, or 1.9%, at $73.92 a barrel on ICE Futures Europe. Both WTI and Brent jumped more than 3% last week to trade at seven-week highs.
WTI oil was “negatively impacted by the strength of the dollar,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
“The greenback started the week on the front foot, trading at its highest for three weeks, as investors fear the fallout from the developing situation in China, where Evergrande 3333, -0.44%, one of the country’s largest construction firms, is at risk of defaulting on debt repayments, triggering a bout of risk aversion in the financial markets and driving demand for the safe haven dollar,” he wrote.
Safe-haven assets, including the U.S. dollar, got a lift, with the ICE U.S. Dollar Index DXY, -0.05%, a measure of the currency against a basket of six major rivals, up nearly 0.1% at 93.273 after trading as high as 93.453. A stronger dollar can be a headwind for commodities priced in the unit, making them more expensive to users of other currencies.
Assets considered risky declined Monday, with U.S. benchmark stock indexes down sharply.
Traders also will be on alert for clues to the timing of the Federal Reserve’s plan to eventually begin tapering its monthly bond purchases. Fed policy makers begin a two-day policy meeting on Tuesday.
Meanwhile, crude production in the Gulf of Mexico continues to slowly recover from Hurricane Ida, which made landfall on the Louisiana coast on Aug. 29. The Bureau of Safety and Environmental Enforcement on Monday estimated 18.2% of Gulf crude production, equal to around 331,078 barrels a day, remained shut in, along with 26.8% of natural-gas output.
The slow return of crude output was seen helping lift prices in recent weeks, though the pace of the recovery picked up last week, noted Carsten Fritsch, analyst at Commerzbank, in a Monday note.
“If production continues to normalize at the pace it did last week — the outage a week ago was still 1.2 million barrels per day, i.e. two thirds of production — we will probably not quite see the outage of up to 30 million barrels that was forecast,” he said.
On Friday, Baker Hughes BKR, 1.96% reported an increase of 10 in the number of active U.S. oil rigs. That “reminded the markets that U.S. shale production will continue to rise as shale producers take advantage of favorable oil prices that are very comfortable,” said Raj.
Also on Nymex Monday, October gasoline RBV21, 0.51% lost 2.6% to $2.115 a gallon and October heating oil HOV21, 1.46% shed 2.3% to 2.159 a gallon.
October natural gas NGV21, 0.35% settled at $4.985 per million British thermal units, down nearly 2.4%. Prices settled Wednesday at the highest since 2014.