Crude oil futures consolidate recent gains; China COVID-19 cases ease

Crude oil futures were mostly steady in mid-morning Asian trade May 17 as prices consolidated recent strong gains, with sentiment supported by easing COVID-19 cases in China and a continuing supply crunch.

At 10:31 am Singapore time (0231 GMT), the ICE July Brent futures contract was up 7 cents/b (0.06%) from the previous close at $114.31/b, while the NYMEX June light sweet crude contract was down 6 cents/b (0.05%) at $114.14/b.

Both crude oil markers were hovering at 7-week highs after recent gains added close to 8% in value as oil markets continued to face a supply crunch from reduced Russian oil exports and under-production from OPEC member states.

Analysts said prices were also being supported in the May 17 session by an improving COVID-19 situation in China, leading to hopes of an easing of harsh movement restrictions by authorities.

"US crude prices rose to the highest level since late March, buoyed by some COVID-19 relief in Shanghai, which has reported a second day of zero community transmission [as of May 16]," IG market strategist Yeap Jun Rong said in a May 17 note.

"That may potentially pave the way for some easing in lockdown measures, with increased mobility and economic activities bringing back demand for energy fuels," Yeap added.

Shanghai on May 17 recorded no new COVID-19 infections outside of quarantine areas for a third day, hitting a key milestone authorities said would allow them to start easing lockdown restrictions.

Supermarkets, malls and restaurants were allowed to reopen May 17, and bus and rail transit services from May 22.

Authorities have named June 1 as the target date to "normalize management and fully restore normal production and life in the city" barring any rebound in infections, the city's deputy mayor Zong Ming said.

"[Shanghai] aims to return to everyday life by June 1, so we should expect mobility to return to its usual post haste. But importantly, this could mean more stimulus down the pipe as even a gradual reopening increases the prospects for policy easing," SPI Asset Management managing partner Stephen Innes said in a May 17 note.

Global oil markets continued to grapple with a dearth of supply May 17 amid reduced output from Russia and key OPEC producers.

Saudi Arabia's crude exports in March dipped from a 22-month high in February as the kingdom ramped up refinery runs, Joint Organizations Data Initiative statistics published May 16 showed.

Saudi crude exports averaged 7.235 million b/d in March, down from 7.307 million b/d in February, which had been the highest since setting a record high in April 2020.

Crude oil stocks in the US strategic petroleum reserve meanwhile have plummeted to lows not seen since May 2001, and are set to drop even further with US President Joe Biden's plan for a continuous SPR release until end 2022.

Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia May 17 from the previous close.

The July Dubai swap was pegged at $105.04/b at 10 am Singapore time (0200 GMT), up $3.59/b (3.54%) from the May 13 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2.99/b at 10 am, up 42 cents/b over the same period, and the July-August intermonth spread pegged at $2.42/b, up 41 cents/b.

The July Brent/Dubai EFS was pegged at $9.39/b, up $1.28/b.