Crude oil futures climb amid supply fears; recessionary concerns weigh

Crude oil futures were higher in mid-morning Asian trade May 25 as supply issues continued to prop up the market.

At 10:20 am Singapore time (0220 GMT), the ICE July Brent futures contract was up $1.14/b (1%) from the previous close at $114.70/b, while the NYMEX July light sweet crude contract rose $1.16/b (1.06%) to $110.93/b.

Concerns about lack of supply continued to dog oil markets despite signs that an EU-wide deal to ban Russian oil imports looked increasingly unlikely.

European Commission president Ursula von der Leyen said May 24 she did not expect a deal to be reached at the European Council summit taking place over May 30-31, though she added that a ban could be introduced "in a matter of weeks," according to media reports.

"With explicit bans on importing Russian crude in the US and the UK, and oil companies reluctant to buy even without formal legal obstacles, self sanctions are still causing supply shortages," SPI Asset Management Managing Partner Stephen Innes said in a May 25 note.

Saudi Arabia's foreign minister said May 24 the oil market "is relatively in balance" as the kingdom continues to brush off calls to produce more crude to bring down soaring prices.

The consumers' pain at the pump is the result of underinvestment in refining capacity, Prince Faisal bin Farhan al-Saud told the World Economic Forum in Davos, and supplying more crude will not relieve the tightness in gasoline and diesel supply.

"It's much more complex than just bringing barrels to the market," he said. "As far as we are aware, there is no shortfall of oil. The problem is refined products, which is something that is more connected to a lack of investment over the last year-and-a-half [to] two years in refining capacity."

Recessionary fears remained at the forefront. The US' S&P 500 index was just 2 percentage points away from confirming a bear market after deep declines in recent weeks.

Analysts said central banks worldwide will likely continue on their path of monetary policy tightening with inflation still coming in at significantly high levels.

"Further dampening of growth may show up in the coming months, as no signs of relief on elevated inflation prints thus far has translated into pressure for central banks to continue with their tightening process," IG market strategist Yeap Jun Rong said.

Oil prices are likely to trade rangebound in the near term amid conflicting signals from the market, analysts said.

Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia May 25 from the previous close.

The July Dubai swap was pegged at $104.92/b at 10 am Singapore time (0200 GMT), up $2.03/b (1.97%) from the May 24 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2.99/b at 10 am Singapore time, up 1 cent/b over the same period, and the July-August intermonth spread was pegged at $2.51/b, up 7 cents/b.

The July Brent/Dubai EFS was pegged at $9.90/b, down 13 cents/b.