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Crude oil futures rangebound as market monitors pandemic, weak US dollar provides support

Singapore — 0312 GMT: Crude oil futures were rangebound during mid-morning trade in Asia May 7 as the threat of mutant coronavirus strains from India dampened market sentiment, but a weaker US dollar provided tailwind to prices.

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At 11:12 am in Singapore (0312 GMT), the ICE Brent July contract was up 27 cents/b (0.4%) from the May 6 settle at $68.36/b, while the June NYMEX light sweet crude contract was up 29 cents/b (0.45%) at $65/b.

The debilitating second wave of the pandemic in India continued to limit the market's upside. The country reported a record 412,431 new COVID-19 infections on May 5, with the death toll at another record high 3,980, latest data from John Hopkins university showed.

Investors are concerned that the protracted pandemic situation in India could yield more mutant strains of the virus, which could reverse the progress other countries have made in controlling the pandemic.

Already, the B.1.617, a double mutant variant from India, has spread to at least 17 countries, according to the World Health Organization, with authorities in India saying that the strain may have contributed to the country's particularly severe second wave. Experts have yet to conclusively determine if this new strain is more lethal or transmissible than the existing strains.

"The situation in India is still providing a major drag for oil prices...oil just needs to consolidate for a month for India and Japan to get a better handle on COVID-19," Edward Moya, senior market analyst at OANDA, said in a May 7 note.

Japan, the world's fourth largest crude importer, has also continued to reel from the pandemic, with media reports saying that a state of emergency, currently in effect in the Tokyo, Osaka, Hyogo and Kyoto prefectures, is set to be extended until the end of May.

However, despite this gloom, oil prices received a boost from a weakening US dollar, with the June contract for ICE US dollar index trading at 90.865 at 11 am, down 0.469% from the previous settle. A weaker US dollar makes dollar-denominated assets such as oil more attractive for buyers holding foreign currency, and hence boost their demand.

On the supply-side, S&P Global Platts earlier reported that the OPEC+ coalition has exceeded its production quotas by 3.316 million b/d through to March, with Russia and Iraq being the most egregious offenders.

Under the terms of the OPEC+ agreement, each country must compensate for any excess production with cuts of equivalent volume below its quota by the end of September.

With the producer group set to ease its cumulative production quota by close to 1.2 million b/d by July, market watchers are optimistic that such compensation could help keep the market in balance, especially given that the resurgence of the pandemic in parts of Asia has added considerable demand-side uncertainty.