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Crude oil futures dip amid uncertain demand recovery

Singapore — 0235 GMT: Crude oil futures traded lower during mid-morning trade in Asia Wednesday as uncertainty around the extent of oil demand recovery lingers, even as more countries attempt to ease COVID-19 lockdowns.

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At 10:35 am Singapore time (0235 GMT), ICE Brent July crude futures fell 50 cents/b (1.67%) from Tuesday's settle at $29.48/b, while the NYMEX June light sweet crude contract was 22 cents/b (0.85%) lower at $25.56/b.

"Oil prices have been getting supported as road travel is increasing as lockdowns ease, but international travel [is] still not lighting up as that was considered to be one of the last areas to recover," Axicorp Chief Global Markets Strategist Stephen Innes said in a note Wednesday.

Major Asian fuel exporters, including South Korea and India, have been struggling to export cargoes since late Q1, as the number of willing buyers dwindled given the coronavirus pandemic.

The global aviation sector is expected to take a longer time to recover as governments across the world adopt an extra cautious stance on international travel.

Fears of a resurgence of new COVID-19 cases have also capped price recovery, while concerns over a lack of storage capacity remain in the backdrop.

"Although inventory gains have slowed, any further increase still puts pressure on a narrowing cushion of spare storage capacity," Innes said.

"Whatever happens in Q2 [is still uncertain] and there continue to be risks of another significant leg down for oil if high global inventories come back into focus as the recovery sags, especially if lockdowns get extended," he added.

The market will look towards US Energy Information Administration data for a clearer trend on inventories later Wednesday. The EIA had said on Tuesday that it estimates US oil production falling to 11.69 million b/d in 2020, and to 10.9 million b/d in 2021, as more oil companies have also announced production cuts in recent weeks.