OIL FUTURES: Crude up on likely easing US-China trade tensions

Crude oil futures rose in mid-afternoon Asian trade on May 7 following thawing US-China tariff tensions, as officials from both countries are set to meet in Switzerland over the weekend.

At 3:30 pm Singapore time (0730 GMT), the ICE July Brent futures contract was up 76 cents/b (1.22%) from the previous close at $62.91/b, while the NYMEX June light sweet crude contract was up 82 cents/b (1.39%) from the previous close at $59.91/b.

Washington announced late May 6 that officials from both the US and China will be meeting at Geneva this coming weekend [May 9-12] in a bid to de-escalate trade tensions. Beijing later confirmed the meeting.

"After a monthlong downside bias, oil prices jumped over 4% in the previous session after markets cheered hopes of US-China trade talks ... the US's willingness to sit for negotiations with China this week in Switzerland is spurring hopes," Priyanka Sachdeva, senior market analyst from Phillip Nova, said.

"It's possible that we hear about significant cuts to the recent tariff rates the two giants imposed on each other. But the tariffs are so high -- 145% for Chinese goods imported into the US and 125% for US goods imported into China -- that even a significant improvement might not satisfy China, which continues to prepare for a potentially prolonged war," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, added.

US crude oil inventories also experienced a substantial draw down of 4.49 million barrels in the weekend on May 2, data from the American Petroleum Institute showed early May 7. The latest reading marks a reversal of last week's stock buildup, and far surpassed market expectations of a 2.5 million-barrel draw.

"For now, some caution is advisable as we approach the likely significant policy decision by the Federal Reserve. Additionally, the cross-border actions between India and Pakistan are also on tap, as another geopolitical escalation is something the markets are hoping to avoid," Phillip Nova's Sachdeva added.

India launched a series of strikes in Pakistan early on May 7, claiming only "terrorist infrastructure" was hit, following a deadly attack on Indian civilians by gunmen in Indian-administered Kashmir two weeks ago, according to media reports.

Pakistan's Ministry of Foreign Affairs called the attacks an "unprovoked and blatant act of war" in a press statement released earlier, and vowed to respond.

Rising geopolitical tensions between Pakistan and India supported crude oil futures prices, as concerns over regional instability and potential supply chain disruptions exerted upward pressure on prices.

Still, uncertainties persist globally as trade relations appear to be shifting dynamically.

"The trade war was supposed to boost demand for the safe-haven US [Dollar], but that didn't happen. And as days go by, it becomes clearer that countries are not willing to play along, and Trump is losing his influence -- a situation that could lead him to back off and de-escalate," Ozkardeskaya from Swissquote Bank said.

All eyes will be on the Federal Reserve's announcement later on May 7 as the Federal Open Market Committee concludes its meeting -- not for the interest rate cut decision but for the economic outlook.

"Make no mistake: what [US Fed Chair Jerome] Powell says in his press conference today is more important than the decision itself. If Powell still thinks the tariff-led inflation boost could be more than just temporary -- and should be addressed accordingly -- the US dollar and US markets won't like the news. If, however, Powell softens his stance to join other Fed members in showing willingness to support the economy, we could see sentiment in US dollar and equities improve," Ozkardeskaya concluded.

Dubai crude

Dubai crude swaps and intermonth spreads were higher in mid-afternoon Asian trading on May 7 from the previous close.

The July Dubai swap was pegged at $61.69/b at 2:00 pm Singapore time (0600 GMT), up by $1.24/b (2.05%) from the previous Asian market close.

The June-July Dubai swap intermonth spread was pegged at 44 cents/b, wider by 2 cents/b over the same period, and the July-August Dubai swap intermonth spread was pegged at 22 cents/b, wider by 6 cents/b over the same period.

The July Brent-Dubai exchange of futures for swaps was pegged at 97 cents/b, wider by 5 cents/b over the same period.