OIL FUTURES: Crude down on surprise US inventory increase

Crude oil futures were lower in mid-afternoon Asian trade May 22 as an unexpected build in US crude inventories outweighed potential support from a weaker dollar, while growing concerns about US debt levels further dampened market sentiment.

At 2:41 pm Singapore time (0641 GMT), the ICE July Brent futures contract was down 65 cents/b (1.00%) from the previous close at $64.26/b, while the NYMEX July light sweet crude contract was down 62 cents/b (1.01%) from the previous close at $60.95/b.

The US Energy Information Administration reported a 1.328-million-barrel build in the week ended May 16, the latest data showed. The American Petroleum Institute reported a stronger stock build at 2.499 million barrels over the same period. Both readings defied market expectations at a 1.85-million-barrel drawdown.

Meanwhile, the ICE US Dollar Index (DXY) was at 99.430 as of 0610 GMT May 22, down 1.29% from the previous close. While a weaker dollar typically makes dollar-denominated oil less expensive for holders of other currencies, this potential support factor was overshadowed by broader concerns about US fiscal health.

Market participants appear increasingly worried about US debt levels as President Donald Trump's "big, beautiful" tax bill advances through Congress. The legislation, which includes approximately $3.8 trillion in tax cuts, is scheduled for a House vote on May 22.

"What is notable is that markets do not find Trump's 'big, beautiful tax bill' beautiful at all. Big yes. Beautiful, no. And we have the "Sell America" knee-jerk, in response to progress on the passage of the tax bill, to show for it," said Vishnu Varathan, managing director at Mizuho.

The negative market reaction was evident in the bond market, with US Treasury yields rising sharply. The 10-year yield jumped nearly 12 basis points to 4.6% while the 2-year yield climbed about 5 basis points to 4.02%.

"Above all, the Greenback stumbling back below 100 by DXY gauge despite materially higher yields, that ought to otherwise boost the USD, is the definitive tell of the 'Sell America' movement," Varathan added.

With uncertainty surrounding the US economy, global oil demand outlook remains tepid. Investors appear to be shifting funds from riskier assets like crude oil to perceived safe havens such as gold.

"Gold continues to attract demand from central banks and conservative investors looking to hedge trade and geopolitical risks. German and European bonds could offer an alternative with relatively stable political backdrops, despite the fading of austerity and the rise of the far right," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Dubai crude

Dubai crude swaps and intermonth spreads were lower in mid-afternoon Asian trading May 22 from the previous close.

The July Dubai swap was pegged at $63.42/b at 2:00 pm Singapore time (0600 GMT), down by $1.09/b (1.69%) from the previous Asian market close.

The June-July Dubai swap intermonth spread was pegged at 41 cents/b, narrower by 8 cents/b over the same period, and the July-August Dubai swap intermonth spread was pegged at 30 cents/b, narrower by 4 cents/b over the same period.

The July Brent-Dubai exchange of futures for swaps was pegged at $1.60/b, narrower by 10 cents/b over the same period.