Crude gains on easing glut; geopolitical uncertainty limits gains

Singapore — 0200 GMT: Crude oil futures edged higher in mid-morning trade in Asia Tuesday amid signs of an easing supply glut, but lingering US-China geopolitical uncertainties over the virus outbreak capped gains.

At 10:00 am Singapore time (0200 GMT), ICE Brent July crude futures rose 35 cents/b (0.99%) from Monday's settle at $35.88/b, while the NYMEX July light sweet crude contract was 78 cents/b (2.35%) higher from Friday's settle at $34.03/b.

NYMEX crude did not trade Monday because of the Memorial Day holiday in the US.

Recent US crude inventory drawdowns, decreasing oil rigs and slowing shale output helped calm supply glut worries.

"On the supply side of the equation, the worst is behind us due to the high level of curtailment in the US shale output," AxiCorp chief global markets strategist Stephen Innes said in a note Tuesday.

US crude output, which totaled 11.5 million b/d last week, was the weakest since October 2018 and down 1.6 million b/d from its mid-March peak, US EIA data showed.

US drillers have also cut a further 21 oil rigs in the week of May 22, UOB analysts highlighted in a note Tuesday, citing latest Baker Hughes data. The total rig count was brought down to 318, the lowest since 1940, they said.

But, despite the signs of slowing production, the market remained concerned over escalating tensions between the US and China.

US President Donald Trump continued to lash out at China for mishandling the outbreak of COVID-19. China's foreign minister said Sunday that the US is pushing China to the brink of a "new cold war", media reports showed.

"Things are bound to get incredibly bumpy as the bullish for oil re-opening narrative will continue to get challenged by heightened US-Sino tensions," Innes said.

"The market will be prone to lay off risk on rallies as trader try to equate prices against the backdrop of a weak real economy," he added.