Crude oil futures climbs, erasing early declines; sentiment still fragile

Crude oil futures were higher in mid-morning trade in Asia June 27, reversing early losses of more than $2/b though sentiment remained fragile amid ongoing concerns of a global economic slowdown.

At 10:36 am Singapore time (0236 GMT), the ICE August Brent futures contract was up 77 cents/b (0.68%) from the previous close at $113.89/b, while the NYMEX August light sweet crude contract rose 52 cents/b (0.48%) at $108.14/b.

The NYMEX crude marker had fallen by as much as $2.02/b in early morning trade in Asia, with ICE Brent not far behind, as recession fears continued to plague sentiment in the financial markets.

Despite the strong downward pressure seen in recent weeks, both benchmarks managed to close out the previous week ended June 24 mostly unchanged after a rally of more than $3/b in the previous June 24 session.

Analysts said the rebound was likely induced by reports of record power demand in parts of China as several regions battle a heatwave, as well as signs that the sell-off in crude oil prices was overdone.

Prompt inter-month time spreads have continued to strengthen despite the weakness in spot prices.

"There could have been some element of the tail (time spreads) wagging the dog (spot) [with] the curve in heavy backwardation for a while, but when word starts spreading that China is a premium for prompt barrels, it's more than enough to spook shorts," Stephen Innes, managing partner at SPI Asset Management, said in a late June 26 note.

The backwardation in the M1-M2 ICE Brent spread had jumped 43 cents/b on the day to settle at $4.02/b at the June 24 close, a high not seen since May 31.

On the week, the M1-M2 spread was up $1.29/b, while the August ICE Brent crude contract was unchanged over the same period.

Refining margins around the world, meanwhile, continued to hover near record highs.

"The weakness in the flat price has coincided with strength in the time spreads," NG analyst Warren Patterson said. "In addition, refinery margins remain very healthy, providing a clear incentive for refiners to maximize throughput rates, which is obviously supportive for crude oil demand."

Analysts said oil prices are likely to trade rangebound in the near term, with conflicting signals of recessionary fears and a supply crunch keeping prices sandwiched in a volatile range.

Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia June 27 from the previous close.

The August Dubai swap was pegged at $101.06/b at 10 am Singapore time (0200 GMT), up $2.47/b (2.51%) from the June 27 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $3.81/b at 10 am, up 2 cents/b over the same period, and the August-September intermonth spread was pegged at $3/b, up 10 cents/b.

The August Brent-Dubai EFS was pegged at $12.09/b, up 8 cents/b.