Crude oil futures fall on news China mulling more Russian oil for strategic reserves

Crude oil futures were lower in mid-morning Asian trade May 20 as media reports of China considering buying Russian oil for its strategic reserves eased concerns of a sharp cutback in Russian crude exports.

At 11:26 am Singapore time (0326 GMT), the ICE July Brent futures contract fell 82 cents/b (0.73%) from the previous close at $111.22/b, while the NYMEX June light sweet crude contract tumbled $1.25/b (1.11%) at $110.96/b.

China remains in talks to buy Russian oil for their strategic reserves, according to media reports, even as the US announced plans of potentially imposing secondary sanctions on Russia.

Russian deputy prime minister Alexander Novak had said May 19 that the country would redirect European crude exports to other markets if the EU imposes an embargo.

Still, a reduction in Chinese exports has been a key driver in tightening refined product supply across the globe, market analysts said.

"This reduction in Chinese exports is more likely structural, with China wanting to drive consolidation within the domestic refining industry and cut emissions, which suggests that the tightness in refined markets is unlikely to disappear anytime soon," ING analysts Warren Patterson and Wenyu Yao said.

Nonetheless, supply-side concerns arose as the US announced late May 19 that considerations of imposing secondary sanctions on countries that purchase Russian oil were "certainly not off the table", according to US Energy Secretary Jennifer Granholm.

As Europe mulls over the decision to agree on a ban on Russian oil, inventories continued to tighten in the refined products market.

"Clearly, the tightness that we are seeing in the US gasoline market is spreading into other regions," ING analysts Patterson and Yao said.

Stocks of diesel and gasoil in the Northwest European hub of Amsterdam-Rotterdam-Antwerp fell 1.96% on the week to 1.55 million mt in the week to May 19, according to Insights Global data, following three weeks of unexpected small stock builds. Stocks are now 25.94% lower than the same period in 2021.

Gasoline stocks in the ARA also fell by 342,000 mt to 1.05 million mt. This decline over the week has seen gasoline inventories fall from more than 5-year highs to just below the 5-year average.

"Given that the driving season is still ahead of us, we would expect to see further declines in inventories, which should prove supportive for gasoline prices over the summer," the ING analysts added.

Dubai crude swaps and intermonth spreads were higher/lower in mid-morning trade in Asia May 20 from the previous close.

The July Dubai swap was pegged at $102.6/b at 10 am Singapore time (0200 GMT), up $2.57/b (2.57%) from the May 19 Asian market close.

The June-July Dubai swap intermonth spread was pegged at $2.87/b at 10 am, up 4 cents/b over the same period, and the July-August intermonth spread was pegged at $2.47/b, up 9 cents/b.

The July Brent-Dubai EFS was pegged at $9.18/b, up 20 cents/b.