Oil prices rise as tight supply counters China COVID, recession worries

LONDON (Reuters) -Oil prices rose on Tuesday as tight global supply outweighed worries that fuel demand would be hit by a possible recession and fresh COVID-19 curbs in China.

Brent crude futures rose 88 cents, or 0.7%, to $123.15 a barrel at 0824 GMT, while U.S. West Texas Intermediate (WTI) crude rose 88 cents, or 0.7% to $121.81 a barrel.

Tight supply has been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports.

Other OPEC+ producers are struggling to meet their production quotas and Russia faces bans on its oil over the war in Ukraine.

"The continuing squeeze on refined products globally, as well as a lack of investment to bring online more supplies from OPEC members, or other sources, means lost Russian production is nowhere near being covered by global markets," said Jeffrey Halley, senior market analyst at OANDA, in a note.

UBS raised its Brent price forecast to $130 a barrel for end-September and to $125 for the subsequent three quarters, up from $115 previously.

"Low oil inventories, dwindling spare capacity, and the risk of supply growth lagging demand growth over the coming months have prompted us to raise our oil price forecast," the bank said.

The market will be awaiting weekly U.S. inventory data from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday for a view of how tight crude and fuel supply remain.

Six analysts polled by Reuters expect U.S. crude inventories to have fallen by 1.2 million barrels in the week to June 3 with gasoline stockpiles up by about 800,000 barrels and distillate inventories, which include diesel and heating oil, unchanged.

On the demand side, China's latest COVID outbreak traced to a bar in Beijing has raised fears of a new phase of lockdowns just as restrictions in the country were being eased and fuel demand was expected to firm.

The Chinese capital's most populous district, Chaoyang, kicked off a three-day mass testing campaign among its roughly 3.5 million residents on Monday.

About 10,000 close contacts of the bar's patrons have been identified, and their residential buildings put under lockdown.]

Looking ahead, oil prices may face pressure if the U.S. Federal Reserve surprises markets with a higher-than-expected interest rate hike to tame inflation when it meets on June 14-15.

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 Crude Oil Futures: Further downside looks unlikely

CME Group’s flash data for crude oil futures markets showed investors trimmed their open interest positions by around 3.4K contracts at the beginning of the week, adding to the previous daily drop. Volume, instead, increased for the fourth session in a row, now by around 160.2K contracts.

WTI: Next support comes at $100.30

Prices of the barrel of WTI dropped sharply on Monday against the backdrop of shrinking open interest. That said, extra losses appear out of favour in the very near term, while prices of the commodity remain well supported by the so far May low near the $100.00 mark per barrel.

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Crude Oil Futures: Rising bets for further upside

Open interest in crude oil futures markets went up for the third consecutive session on Thursday, now by nearly 19K contracts according to advance prints from CME Group. Volume followed suit and rose by 157.3K contracts, fading the previous day’s retracement.

WTI now targets April tops around $109.00

Prices of the WTI extended the weekly recovery on Thursday. The move was accompanied by rising open interest and volume, paving the way for the continuation of this bounce to, initially, the April high just above the $109.00 mark per barrel in the very near term.

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Oil prices edge higher with falling supplies in focus

Oil prices edged higher on Wednesday after Moscow said that peace talks with Ukraine had hit a dead end, fuelling supply worries, while weak economic data from China and Japan kept a lid on gains.

Brent crude rose by 48 cents, or 0.5%, to $105.12 a barrel by 0808 GMT while U.S. West Texas Intermediate (WTI) crude futures gained 28 cents, or 0.3%, to $100.88. Both benchmarks had surged by more than 6% on Tuesday.

"The downside for oil prices is limited," said OANDA senior market analyst Jeffrey Halley, citing the Russian comments on peace talks and U.S. President Joe Biden accusing Russia of genocide. These "are reinforcing that the Ukraine-Russia situation will not be de-escalating any time soon".

Russian President Vladimir Putin on Tuesday blamed Ukraine for derailing peace talks and said Moscow would not let up on what it calls a "special operation" to disarm its neighbour.

Crude futures are also drawing support from Russian oil and gas condensate production falling to below 10 million barrels per day (bpd) on Monday, its lowest since July 2020.

The International Energy Agency (IEA) on Tuesday said it expected Russian oil output losses to average 1.5 million bpd in April, with losses growing to close to 3 million bpd from May.

Western sanctions against Russia and logistical constraints have hampered trade, people familiar with the data said on Tuesday.

OPEC has warned that it would be impossible to replace potential supply losses from Russia and signalled that it would not pump more crude.

Reports this week of partial easing of some of China's tight COVID-19 lockdown measures also underpinned oil prices.

Price gains, however, were kept in check by weak data from China and Japan.

China's crude oil imports slipped 14% from a year earlier, extending a two-month slide, as strict coronavirus restrictions hit demand in the world's top crude importer.

Japan reported its biggest monthly fall in core machinery orders in nearly two years, dragged down by a steep drop in demand from IT and other service companies.

The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday cut its forecast for 2022 global oil demand growth, citing the impact of Russia's invasion of Ukraine, rising inflation as crude prices soar and the resurgence of the Omicron coronavirus variant in China.

OPEC now expects global demand to grow by 3.67 million bpd in 2022, down 480,000 bpd from its previous forecast.

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