Rising coronavirus cases in India weigh on crude oil prices

Crude futures continued to weaken midday US trading April 30 as the spread of the coronavirus in India and Brazil combined with lackluster economic releases from Europe and China.

At 1730 GMT, NYMEX front-month crude was trading around $63.63/b, down $1.38, while ICE front-month Brent was trading around $67.32/b, down $1.24.

Refined products were also lower, with NYMEX front-month RBOB down 2.94 cents at $2.0705/gal and front-month ULSD down 3.84 cents at $1.923/gal.

India on April 29 recorded its highest number of deaths in a single day since the start of the pandemic. The country reported 379,257 new cases and 3,645 new deaths, bringing total cases to 18.38 million, according to its health ministry.

"Oil demand is recovering well in the US, Europe and China, but a surge in new COVID-19 cases in India is of concern. New restrictions in India could see global demand contract by 200,000 to 400,000 b/d this year," ANZ Research analysts said in an April 30 note.

While more than half of the adult population in the US has received at least one COVID-19 vaccine dose, prompting a gradual reopening of the economy, daily vaccinations have started to decline.

"On the one hand you look at what could be the biggest demand surge in history in the US and China," said Price Futures Group analyst Phil Flynn. "On the other hand, the coronavirus is spreading elsewhere, creating concerns of a demand slowdown."

Flynn also attributed the April 30 decline in oil futures to end-of-month profit taking as front-month crude futures have climbed in recent weeks.

"Because it's the end of the month ... fund traders aren't going to take any chances," he said.

Also bearish for crude futures was a drop in eurozone gross domestic product. First quarter GDP fell 0.6% from the previous quarter, according to data from Eurostat, the statistical office of the EU, on April 30.

Growth in China's manufacturing and services sector also showed signs of slowing. The manufacturing Purchasing Managers' Index was 51.1 in April compared with 51.9 in March, according to data published April 30 by China's National Bureau of Statistics.

"The National Bureau of Statistics explained that chip shortages and logistical constraints had impacted the headline numbers, very much the theme we are seeing from around the world at the moment," said Jeffrey Halley, OANDA's senior market analyst, Asia Pacific, in an April 30 note.

Market analysts were expecting China's crude oil demand to taper in the coming week as factories wind down during its five-day Labour Day holidays from May 1. Japan is also currently on its Golden Week holiday, which began on April 29 and will end on May 5.

The longer-term outlook for the market remains positive, with optimism for a strong recovery as the US and Europe move out of the pandemic.

"The market is looking beyond the current pandemic-induced weakness of demand in India and expects demand to increase massively and stocks to be further reduced in the second half of the year," Commerzbank oil analyst Eugen Weinberg said in a note April 30.

"Many market observers regard the current environment on the oil market as a kind of 'Goldilocks scenario' in which everything is 'just right' on the market."

In addition, expectations of a pronounced correction resulting from the OPEC+ decision to scale up production appears less likely, with the organization's monthly meetings allowing flexibility for any necessary short-term adjustments. Increased production is expected to be readily absorbed by a postpandemic demand spike.

"Vaccines will be the liberation day for oil markets and return of demand will not be gradual but sudden," said Bjarne Schieldrop, chief analyst commodities at SEB. "We are going to have massive oil revival in the coming 3-6 months."