Crude oil futures ease as Saudi cuts OSPs; Russian oil ban face hurdles

Crude oil futures were lower in mid-morning Asian trade May 9, easing from three-week highs, as cuts to Saudi Arabia's latest official selling prices as well as hurdles in implementing an European Union-wide Russian oil ban weighed on sentiment.

At 10:43 am Singapore time (0243 GMT), the ICE July Brent futures contract was down 40 cents/b (0.36%) from the previous close at $111.99/b, while the NYMEX June light sweet crude contract fell 51 cents/b (0.46%) at $109.26/b.

Saudi Aramco in a May 8 notice lowered almost all of its crude oil OSPs across Asia, Europe and the Mediterranean for June-loading cargoes, in a sign that lockdowns in China and surging fuel prices were beginning to hit demand.

"Lockdowns in China have weighed on domestic fuel demand and this is likely to weigh on refinery runs, which in turn would reduce demand for crude oil," said ING analysts Warren Patterson and Wenyu Yao in a May 9 note.

Soaring jet fuel prices were already beginning to lead to demand destruction in some countries, Patterson and Yao said. All Nigerian domestic flights had been due to be grounded indefinitely from May 9 due to the high cost of jet fuel, the Airline Operators of Nigeria association said May 6, though the plan was later withdrawn in a subsequent notice on May 8.

Late last week, crude oil markers had scaled to highs not seen since April 18, after the European Union announced plans to gradually phase in an embargo on Russian crude and refined products by year-end.

That plan now appears to be in doubt, after several EU-member states, including Hungary and Slovakia, opposed it due to their heavy reliance on Russian oil. The EU's 27 ambassadors had met May 8 to move ahead on the ban without success, though more talks were planned for the coming days, according to media reports.

"Hungary and Slovakia under the latest proposal would have until the end of 2024 to wean themselves off Russian oil, whilst the Czech Republic would have until June 2024," ING's Patterson and Yao said in their report.

"However, this appears to have not been enough for Hungary, which continues to block the planned ban. If these talks drag on, we could see some selling pressure returning to the market, which we appear to already be seeing in early morning trading in Asia," they added.

Nonetheless, analysts noted that the persistent threat of an escalation in the Ukraine war, as well as the possibility of further sanctions by the West, will keep a floor under oil prices for now.

Dubai crude swaps were higher in mid-morning trade in Asia May 9 from the previous close, though intermonth spreads were mixed.

The July Dubai swap was pegged at $103.91/b at 10 am Singapore time (0200 GMT), up $1.18/b (1.15) from the May 6 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2.41/b at 10 am, down 7 cents/b over the same period, and the July-August intermonth spread was pegged at $2.06/b, up 4 cents/b.

The July Brent-Dubai EFS was pegged at $8.21/b, down 78 cents/b.