Oil edged higher as surging refined product markets drove prices higher, offsetting threats to China’s fuel demand outlook stemming from its stringent measures to curb Covid-19.
West Texas Intermediate futures closed above $105 a barrel after falling nearly $100 earlier in the session. Fuel markets continued to show signs of extraordinary tension, with diesel futures jumping almost 5%. Avoidance of Russian petroleum products has forced Europe and Latin America to rely more heavily on US imports for fuel, leaving fuel supplies stretched.
Prices fell earlier, with China reporting a sharp contraction in economic activity in April as the country struggles to contain a widespread outbreak of Covid-19, raising concerns about further disruption to supply chains world.
A measure of diesel’s future premium to crude futures — the spread of crack diesel — soared Monday to a new high dating back to 1986. Diesel’s strength versus crude is entrenched in the depletion of supplies around the world as countries cut Russian fuel.
“The imbalance of diesel demand versus supply around the world is keeping buyers active in the face of any weakness in crude,” said Dennis Kissler, senior vice president of trading, BOK Financial.
While over the past few sessions prices have fallen on concerns about a drop in demand, the longer-term signals point to an undersupplied oil market. The OPEC+ alliance is expected to ratify its planned supply increase later this week, despite managing to raise output by just 10% in March. Meanwhile, the European Union is set to propose a ban on Russian imports by the end of the year, and Germany has said it could end its dependence on Russia by the summer.
Oil soared for a fifth month in April, marking the longest monthly winning streak since January 2018. Russia’s invasion of Ukraine boosted inflation and drove the United States and its allies the month latest to agree on a coordinated release of strategic crude reserves to mitigate the energy surge. prices. The war also triggered a rise in diesel prices in the United States
- WTI for June delivery rose 48 cents to settle at $105.17 a barrel in New York.
- Brent for July settlement rose 44 cents to settle at $107.58 a barrel.
Beijing has closed nearby gyms and cinemas during the labor holiday which lasts until Wednesday. Lockdowns persist in Shanghai, although there are cautious signs that the financial hub’s outbreak is starting to ease.
Chinese demand for oil has fallen by more than a million barrels a day since the start of the year and “it doesn’t look like it’s going to come back any time soon,” said Ed Morse, global head of oil research. commodities at Citigroup, on Bloomberg Television. He added that in the United States, gasoline consumption has stagnated.
(with the help of Christine Buurma, Chunzi Xu, Michael Roschnotti and Sophie Caronello)