Crude oil futures recover from overnight lows amid choppy trading

Crude oil futures were higher in mid-morning Asian trade May 4, recovering from overnight lows after plunging by more than $2/b, as investors digested conflicting signals of reduced demand from China and the growing possibility of a European ban on Russian oil imports.

At 10:15 am Singapore time (0215 GMT), the ICE July Brent futures contract was up 89 cents/b (0.85%) from the previous close at $105.86/b, while the NYMEX June light sweet crude contract was 96 cents/b (0.94%) higher at $103.37/b.

Crude oil prices have been bouncing within an increasingly narrow range since the war in Ukraine broke out in late February. The daily candlestick chart for ICE Brent crude showed a triangle pattern forming in recent weeks, analysts said, with prices likely poised for a breakout soon.

"Energy traders remain constructive on oil prices and appear still willing to look for opportunities on dips," said SPI Asset Management Managing Partner Stephen Innes in a May 4 note. "Still, the whipsaw and volatility has made it extremely challenging to take tremendous directional views these days."

Investors remained on edge over the possibility of an EU-wide ban on Russian oil imports. The EU is set to propose an embargo on Russian oil in its next sanctions package against Moscow this week, according to EU officials May 3, though the latest curbs will likely carve out exceptions for countries such as Hungary and Slovakia that depend heavily on Russian oil.

Germany, Europe's biggest buyer of Russian oil, has already signaled it is ready to cope with a phased embargo on Russian crude and oil product imports.

Nonetheless, ship-tracking data showed Russian oil simply being diverted elsewhere in a rearranging of international crude oil flows, as buyers in Asia pick up the slack amid falling imports by European buyers.

India imported 627,000 b/d of Russia's Urals crude in April, up from 274,000 b/d and zero in March and February respectively, according to data from commodity intelligence firm Kpler.

Interest rate impact

The broader financial markets remained skittish over the US Federal Reserve's open market committee meeting later May 4. The Fed is widely expected to raise its key interest rate by a half-percentage point, with more aggressive hikes set to be announced for the rest of its meetings this year.

Any hawkish moves by the Fed will strengthen the US dollar, which will in turn affect demand for dollar-denominated oil.

"With the FOMC meeting underway, market sentiments remain largely cautious -- although there may be attempts to hold up on some hopes that much hawkish expectations have been priced," said IG market strategist Yeap Jun Rong. "A 50 basis-point hike is widely expected to be announced ahead, with the Fed Funds futures pricing for further half-point hikes in the June, July and September meetings as well."

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia May 4 from the previous close.

The July Dubai swap was pegged at $98.28/b at 10 am Singapore time (0200 GMT), down $1.85/b (1.85%) from the April 29 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2/b at 10 am, down 13 cents/b over the same period, and the July-August intermonth spread was pegged at $1.54/b, down 29 cents/b.

The July Brent/Dubai EFS was pegged at $7.52/b, down 42 cents/b.