Crude oil futures edge higher as easing restrictions in Europe offset India's COVID-19 surge

Singapore — 0316 GMT: Crude oil futures edged higher during mid-morning trade in Asia May 4 as plans to ease travel restrictions in Europe lifted hopes of stronger demand, countering the demand erosion in India caused by a surge in COVID-19 cases.

At 11:16 am Singapore time (0316 GMT), the ICE Brent July contract was up 8 cents/b (0.12%) from the May 3 settle at $67.64/b, while the June NYMEX light sweet crude contract was up 7 cents/b (0.11%) at $64.56/b.

The European Commission late May 3 outlined plans to allow travelers who are fully vaccinated to travel within the EU after almost a year of pandemic-induced travel restrictions.

The recommendation could be adopted by the EU's 27 member states as early as May 5, in time for the summer holidays, according to media reports.

Market analysts expect this will increase holiday travel to Europe's coastal regions and mobility in major cities, boosting fuel demand.

In the US, most capacity restrictions will also be lifted in states around the New York region later in May.

"The renewed optimism ahead of the summer driving season, a period in which gasoline demand is typically at its seasonal peak, is helping to offset concerns over a strong record of daily infections in India, the third-largest oil-consuming country," said Avtar Sandu, senior commodities manager at Philips Futures, in a May 4 note.

India reported more than 300,000 new COVID-19 cases for a 12th straight day on May 3, taking total cases to almost 20 million, according to its health ministry.

While no national lockdown has been imposed, demand for transport fuel has weakened. "Domestic demand has been hit so hard that Indian refiners are now looking to export fuel. In fact, sales of gasoline fell to 2.14 million mt in April, the lowest level since August, according to preliminary data from officials," ANZ Research analysts said in a May 4 note.

Market analyst expect the weakness to continue given the daily increases in COVID-19 cases.

"The uncontrolled COVID-19 outbreak in India will continue to pose the biggest downside risk to oil prices for now," OCBC Treasury Research analysts said in a May 4 note. Selling pressure is expected to build each time Brent attempts to cross $68/b, they added.

Besides the decrease in India's oil demand, progress in nuclear negotiations between the US and Iran could result in a boost to global crude supply and put further pressure on prices, analysts said.

Iran has reportedly said it expects to export up to 2.5 million b/d of crude oil should nuclear deal talks with the US and other nations lead to the removal of sanctions, according to media reports.