Crude oil futures tumble on fresh China COVID-19 curbs, stronger dollar

Crude oil futures were lower in mid-morning Asian trade July 12, as risk aversion took centerstage again amid fresh COVID-19 curbs in China and the US dollar hitting 20-year highs.

At 10:32 am Singapore time (0232 GMT), the ICE September Brent futures contract was down $1.23/b (1.15%) from the previous close at $105.87/b, while the NYMEX August light sweet crude contract fell $1.30/b (1.25%) at $102.79/b.

"Oil prices have come under a bit of pressure in early morning trading in Asia today," ING's Head of Commodities Strategy Warren Patterson said in a July 12 note. "A rise in COVID cases in Shanghai will not be helping sentiment, particularly given that China continues to pursue its zero-COVID policy, which creates a fair amount of demand risk for the market."

COVID-19 cases in Shanghai over the weekend hit their highest levels since late May, sparking fresh fears of a return to lockdowns for the city. Several other Chinese cities, including Xi'an and Lanzhou, have already placed restrictions on their residents in response to a rise in COVID-19 cases.

In Macau, all casinos were ordered shut for one week starting July 11 and residents told to stay home except for short trips for essential services.

The developments will spark fresh fears of a dent on oil demand in the world's second largest oil consuming nation. Refining margins in Asia have eased in recent days, partly due to regional refiners sharply raising production and exports to take advantage of previously record-high margins.

The Month2 Singapore 92 RON gasoline swap crack spread against Brent crude has more than halved since touching a record high of $31.28/b on June 24. It was last assessed at $14.88/b at the July 8 Asian market close.

Similarly, the M2 Singapore gasoil swap crack spread against Brent crude was assessed at $42.19/b July 8, down from an all-time high of $62.28/b on June 24.

The US dollar index, meanwhile, neared 20-year highs this week as aggressive interest rate hikes by the US Federal Reserve, as well as a weakening economic outlook for Europe, drove inflows into the dollar.

A stronger dollar makes it more expensive for holders of other currencies to buy dollar-denominated oil.

As of 0232 GMT, the US dollar index was up 0.28% at 108.32.

On the supply side, fears of further disruptions eased after a court order suspending loadings of Kazakh CPC Blend crude oil at the Russian port of Novorossiisk was overturned on appeal July 11.

"Concerns of supply disruptions eased after a court allowed the crucial CPC terminal on Russia's Black Sea to stay operational," ANZ Research analysts Brian Martin and Daniel Hynes said.

Dubai crude swaps were higher in mid-morning trade in Asia July 12 from the previous close, though intermonth spreads were lower.

The September Dubai swap was pegged at $94.87/b at 10 am Singapore time (0200 GMT), up 60 cents/b (0.64%) from the July 8 Asian market close.

The August-September Dubai swap intermonth spread was pegged at $3.64/b at 10 am, down 16 cents/b over the same period, and the September-October intermonth spread was pegged at $2.66/b, down 22 cents/b.

The September Brent-Dubai EFS was pegged at $11.61/b, down 23 cents/b.