Crude oil futures regain ground after China infections spark overnight plunge

Crude oil futures were higher in mid-morning Asian trade April 12, regaining ground lost in overnight trading after jitters over rising COVID-19 cases in China and upcoming oil reserve releases saw ICE Brent crude settling back below the $100/b mark.

At 10:18 am Singapore time (0218 GMT), the ICE June Brent futures contract was up $1.81/b (1.84%) from the previous close at $100.29/b, while the NYMEX May light sweet crude contract rose $1.83/b (1.94%) at $96.12/b.

Both crude oil benchmarks had shed over 4% in overnight trading amid a confluence of bearish factors in recent weeks, among them massive oil reserve releases from the US and International Energy Agency and surging COVID-19 cases in China.

While oil prices were rising in Asian trade April 12 likely on dip-buying, analysts said they were expected to remain pressured in the near term.

"China is unlikely to stray from its zero-COVID strategy, with Shanghai's communist chief Li Qiang pledging the city will continue with its strict lockdown rules to control the virus outbreak," said ANZ Research analysts Brian Martin and Daniel Hynes in an April 12 note. "This saw Brent crude fall nearly 4%. It has now given up most of the gains earned since Russia invaded Ukraine," they added.

Shanghai reported 994 symptomatic cases and 22,348 asymptomatic cases as of April 11, the local government said on its official WeChat account April 12. Despite daily new COVID-19 infections hovering near record highs, city authorities from April 11 relaxed some lockdown measures, allowing low-risk areas more movement.

In the longer-term, market watchers have pointed to a structural supply deficit keeping oil prices elevated, while expressing doubts about the effectiveness of the oil reserve releases from the US and IEA member countries.

Years of underinvestment has led to some OPEC producers struggling to fulfill their output quotas, while the US' SPR releases might push some US oil producers to rein in production growth.

"Oil prices will play tug-of-war here as crude inventories remain low, but energy traders will struggle to shake-off these steady announcements of new COVID restrictions in China," said OANDA senior market analyst Edward Moya.

Dubai crude swaps were higher in mid-morning trade in Asia April 12 from the previous close, though intermonth spreads were lower. The June Dubai swap was pegged at $94.87/b at 10 am Singapore time (0200 GMT), up 20 cents/b (0.21%) from the April 11 Asian market close.

The May-June Dubai swap intermonth spread was pegged at 51 cents/b at 10 am, down 37 cents/b over the same period, and the June-July intermonth spread was pegged at 50 cents/b, down 17 cents/b.

The June Brent/Dubai Exchange of Futures for Swaps spread was pegged at $4.96/b, down $1.04/b.