OIL FUTURES: Crude falls on China's COVID-19 concerns as mass testing begins

Crude oil futures fell in mid-morning Asian trade April 28 as news of China's mass testing for COVID-19 weighed on sentiment, overshadowing supply-side concerns of a modest US inventory build and looming risk of further Russian energy sanctions.

At 11:00 am Singapore time (0300 GMT), the ICE June Brent futures contract was down $1.63/b (1.55%) from the previous close at $103.69/b, while the NYMEX June light sweet crude contract fell $1.44/b (1.41%) at $100.58/b.

On April 27, China reported 48 new symptomatic and 2 new asymptomatic COVID-19 cases in Beijing, state broadcaster CCTV reported April 28.

Beijing rolled out a mass testing program with millions of people in Beijing taking their 2nd COVID-19 test of the week on April 27.

In Hangzhou, similar measures were undertaken as state media reported that mass testing also began in the city with a population of 12.2 million.

"Beijing is unlikely to adjust the current COVID policy anytime soon despite economic and social costs rising rapidly," Stephen Innes, managing partner at SPI Asset Management said in an April 28 note. "However, the CCP may fine tune its COVID approach gradually, but the roadmap and triggers for this change remain the top macro uncertainty for oil markets."

On the supply side, a Russian oil embargo by the EU looks increasingly likely after Russian gas exporter Gazprom fully suspended gas deliveries to Bulgaria and Poland April 27 due to non-payment in rubles, coupled with Germany signaling it might be ready to support a gradual ban on Russian oil, according to market analysts.

Germany would be able to deal with a complete embargo on Russian crude and oil product imports, its economy minister Robert Habeck said April 27, S&P Global Commodity Insights reported earlier.

Habeck added that Europe's biggest economy has slashed its dependence on Russian crude to 12% of imports from 35% before the invasion of Ukraine, signaling that they might be ready to support a gradual ban on Russian oil.

"The market appears to be supported by reports that Germany would be willing to support a phasing out of Russian oil, much as we are seeing with coal," Warren Patterson, head of commodities strategy at ING said in an April 28 note. "If the EU was to go ahead with an orderly phasing out of Russian oil, this would obviously have less of an impact on prices compared to a situation in which we were to see an overnight ban."

Meanwhile, US commercial crude oil stocks climbed 690,000 barrels in the week ended April 22 to 414.42 million barrels, Energy Information Administration said April 27. The build came in well below market expectations and put stocks 15.4% behind the five-year average for this time of year.

American Petroleum Institute data released late April 26 showed a crude oil inventory build of 4.78 million barrels for the week ended April 22, while analysts surveyed by S&P Global Commodity Insights on April 25 had pointed to a 1.7 million-barrel build over the period.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia April 28 from the previous close.

The June Dubai swap was pegged at $99.15/b at 10 am Singapore time (0200 GMT), down 61 cents/b (0.61%) from the April 27 Asian market close.

The May-June Dubai swap intermonth spread was pegged at $1.71/b at 10 am, down 13 cents/b over the same period, and the June-July intermonth spread was pegged at $1.65/b, down 5 cents/b.

The June Brent-Dubai EFS was pegged at $5.40/b, up 26 cents/b.