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Crude oil futures tick lower amid softening Chinese demand cues

0305 GMT: Crude oil futures dipped during mid-morning Asian trade June 8, amid softening demand cues from independent Chinese refineries, even as strong demand indicators from the West and slow progress in US-Iran nuclear talks, which could lift sanctions on Iranian crude, continue to support sentiment.

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At 11.05am Singapore time (0305 GMT), the ICE Brent August contract was down 66 cents/b (0.92%) from the previous settle at $70.83/b, while the July NYMEX light sweet crude contract was down 63 cents/b (0.91%) at $68.60/b.

Ongoing investigations into China's independent refining sector regarding the illegal trade of government issued crude oil import quotas, as well as destocking activity amid strong crude prices, have resulting in easing demand.

According to preliminary data from the General Administration of Customs, China's crude imports slumped 14.6% on the year to a five-month low of 9.69 million b/d in May, S&P Global Platts reported earlier.

"Crude's rally came to a screeching halt overnight after WTI tested the $70/b level and as China's imports dropped to a five-month low. The weakness in Chinese demand appears to be more of a story about China's private refining sector tentatively slowing purchases as they deal with investigations to address structural overcapacity," OANDA's senior market analyst, Edward Moya, said in a June 8 note.

However, the weakness in the market is expected to be temporary, as recovery in the West continues to buoy sentiment in the market amid easing travel restrictions and the strong seasonal summer demand.

"The downward spike is likely to be short-lived, as the fundamentals for oil have aligned very well. For now, there may be some nervous long positions in the market that are closing out to lock in profit and pushing the market down," Jeffery Halley, senior market analyst at OANDA, told Platts on June 8.

Citing data from creator of location technology, TomTom, analysts at ANZ noted in a June 8 note that traffic in 15 European cities was as busy as in 2019. "This is the highest level of traffic since the pandemic began," they said.

"Travel data in the US continues to improve. The number of passengers passing through airport security checkpoints continues to climb strongly," ANZ analysts added.

Along with strengthening demand signals from the US and Europe, concerns of tightness in the oil markets are further amplified by sluggish progress in US-Iran nuclear talks, which are keeping Iranian crude exports at bay.

"The energy market remains fixated over the Iranian nuclear deal talks with both sides doing a lot of posturing," Moya said in the June 8 note. "US State Secretary Blinken noted that it is unclear whether Iran is willing, prepared to do what is necessary to come back into compliance with the Iran nuclear deal."

Meanwhile, the market awaits OPEC's and the International Energy Agency's June Oil Market Reports, due to be released June 10 and June 11, respectively, to get a better sense of supply and demand fundamentals in the crude markets going forward.