Crude oil futures extend rally on tight supply forecasts, stalling Russian-Ukraine talks

Crude oil futures were higher in mid-morning trade in Asia March 18 on the back of forecasts of looming global supply shortages and growing pessimism over the lack of progress in Russian-Ukraine peace talks.

At 11 am Singapore time (0300 GMT), the May ICE Brent futures contract was up $2.47/b (2.32%) from the previous close at $109.11/b, while the April NYMEX light sweet crude contract was $2.59/b (2.52%) higher at $105.57/b.

Kremlin spokesman Dmitry Peskov March 17 dismissed reports of substantial progress being made in peace talks with Ukraine and blamed Kyiv for slowing the negotiations, according to media reports.

US President Joe Biden is scheduled to speak with Chinese President Xi Jinping later March 18, with the US concerned that China is considering helping Russia militarily, which Beijing has denied.

"Oil prices edged higher after Secretary of State [Antony] Blinken said he doesn't see signs that Putin is prepared to stop and that the US is concerned China is considering helping Russia," OANDA analyst Edward Moya said in a note March 18.

"This war seems like it won't be ending anytime soon and that likely means oil prices could have another strong rally here,"

The lack of progress in Russia-Ukraine talks is likely to exacerbate supply tightness concerns in the wake of the International Energy Agency on March 16 warning of a potential global oil supply shock, with an estimated 3 million b/d of Russian oil production likely to be shut in next month due to sanctions and buyers shunning the major exporter.

The IEA forecast a crude oil deficit in the supply-demand balance of 700,000 b/d in the second quarter, assuming Middle East producers in the OPEC+ group stick with their current quota plans as expected, as well as a continued potential supply deficit crunch in Q3.

OPEC+ next meets March 31 to determine production plans for May, but S&P Global assumes the group will stick with its existing schedule to raise quotas by 432,000 b/d despite growing calls for higher output.

"The Saudi Crown Prince noted the kingdom is keen on maintaining the oil market balanced and stable," Moya said in the note.

OPEC+ oil production increased by 130,000 b/d in February, far short of its 400,000 b/d target, and overall production in the month was almost 1.1 million b/d below the agreed level.

This was a key reason why the IEA predicts an undersupplied market in Q2, switching from an earlier forecast of oversupply.

Meanwhile, concerns of weaker demand in China eased on reports of lockdown measures being relaxed.

"The total lockdown is being eased; over the last two days, the Chinese government has realized its need to support businesses and communicate better, given the tame healthcare footprint omicron presents," Stephen Innes of SPI Asset Management said in a note March 18.

"Further easing of restrictions could lead to a significant upward demand rerating across China, as this initial walk back in restraint could trigger domino effects across lockdown China," he added.

Dubai crude swaps and intermonth spreads widened in mid-morning trade in Asia March 18 from the previous close.

The May Dubai swap was pegged at $99.75/b at 11 am Singapore time (0300 GMT), widening from $92.86/b at the Asian market close March 17.

The April-May Dubai swap intermonth spread pegged at $3.56/b at 11 am, up from $3.31/b over the same period, and the May-June intermonth spread pegged at $2.39/b, up from $1.82/b.