Crude rises on expected return of Chinese demand

Crude oil futures rose in mid-afternoon Asian trade on May 18 on the expectation that COVID-19-related restrictions in China will be lifted soon, spurring demand. Reports that the US is allowing Chevron to negotiate oil licenses with Venezuela's national producer could exert downward pressure.

The ICE July Brent futures contract was up 19 cents/b (0.17%) from the previous close at $112.12/b at 2:33 pm Singapore time (0633 GMT) May 18, while the NYMEX June light sweet crude contract rose 66 cents/b (0.59%) to $113.06/b.

"Beyond the near-term, less awful news on China offers... much higher oil demand and prices, which is positive for producers, but harmful for consumer sentiment," SPI Asset Management managing partner, Stephen Innes said in a May 18 note.

Shanghai officials said late on May 17 that all 16 districts of the Chinese financial hub had achieved zero-COVID at the community level and is preparing to start easing lockdown restrictions. The city's deputy mayor Zong Ming has set June 1 as the target date to "normalize management and fully restore normal production and life in the city."

Data released by the American Petroleum Institute on May 17 showed a tightening market in the US with a 2.4-million barrel crude draw for the week ended May 13, compared with analyst expectations of a 1.5 million barrel build. Gasoline stocks recorded the largest decline, falling by 5.1 million barrels over the period.

"At a time when US gasoline inventories should be building ahead of the driving season, inventories have instead declined for most of this year. These are now below the low end of the five-year range," ING analysts Warren Patterson and Wenyu Yao said in a May 18 note.

Official inventory data from the US Energy Information Administration will be released late May 18. Market analysts have said that any sharp falls in gasoline and distillate inventories could further increase the WTI premium over Brent crude.

US President Joe Biden's administration issued a license to Chevron to resume talks with the regime of Venezuelan President Nicolas Maduro to negotiate and potentially restart operations in the country, S&P Global Commodity Insights reported earlier.

This marked a temporary lifting of a US ban on such discussions, and analysts said the proposed changes could see more crude hitting the market but any increase could be limited in the near term.

"Any progress on Venezuela's supply returning to international markets is potentially a gamechanger and should mean the top of my longer-term range, at $120/b, remains intact," OANDA's senior market analyst Jeffrey Halley said in a May 18 note.