Crude oil falls on China lockdown fears, higher-than-expected US inflation

Crude oil futures were lower in midmorning Asian trade June 13, as pandemic-related concerns in China, coupled with a higher-than-expected US inflation report weighed on sentiment.

At 10:53 am Singapore time (0253 GMT), the ICE August Brent futures contract was down $1.84/b (1.51%) from the previous close at $120.17/b, while the NYMEX July light sweet crude contract fell $1.83/b (1.52%) at $118.84/b.

COVID-19 worries in Beijing dampened the anticipated demand recovery in China and these concerns were further aggravated by Shanghai's temporary lockdown measures on June 11 for coronavirus mass testing.

On June 12, Chinese authorities announced mass testing in Chaoyang, Beijing until June 15, as the country doubles down on the 'dynamic zero-COVID policy'.

"China remains the significant near-term downside risk, but most view the gradual normalization of Chinese demand as a powerful positive for oil despite the potential for lockdown noise in the coming weeks as current demand is far from reflecting normal conditions," SPI Asset Management's managing partner Stephen Innes said in a June 13 note.

In the US, consumer price index rose at an 8.6% annual rate in May, hitting a four-decade high, the government data showed.

"This crushed the notion that inflation may have peaked the prior month and markets are now expecting an even more aggressive tightening stance from the US Federal Reserve on the back of Friday's inflation data," OCBC treasury research analysts said in a note June 13.

Sustained rise in inflation rate is likely to keep the pressure on the US Federal Reserve to sharpen its pace of interest rate hikes.

"Oil traded lower as Fed tightening expectations hit fresh highs driving recession fears to multi-storey levels," Innes said in the note.

Dubai crude swaps and intermonth spreads were lower in midmorning trade in Asia June 13 from the previous close.

The August Dubai swap was pegged at $108.12/b at 10 am Singapore time (0200 GMT), down $3.41/b (3.06%) from the June 10 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $3.27/b at 10 am, down 8 cents/b over the same period, and the August-September intermonth spread was pegged at $2.32/b, down 11 cents/b. The August Brent/Dubai EFS was pegged at $11.49/b, up 7 cents/b.