West Texas Intermediate traded near $110 a barrel, having faltered initially even as China rolled out a broad package of measures to support businesses and aid demand, including policies to help people buy cars and ensure cargo transport runs smoothly.
As China’s curbs drag on, banks are pruning forecasts for growth in the largest oil importer. UBS Group AG cut its gross domestic product projection to 3% from 4.2%, while JPMorgan Chase & Co. downgraded to 3.7% from 4.3%.
“The market is underwhelmed by China’s efforts to cushion the impact of China’s increasingly controversial Covid Zero approach which has seen growth projections slump,” said Ole Sloth Hansen, head of commodities research at Saxo Bank A/S.
US benchmark oil has traded in a narrow range around $110 a barrel over the past two weeks as investors weigh the fallout from war in Ukraine, including Hungary’s opposition to a European Union ban on Russian crude, and the outlook for growth. While US oil consumption is expected to pick up further over a busy summer-driving season, energy usage in China has been crimped by the harsh lockdowns imposed in key cities to combat coronavirus outbreaks.
Product markets are losing some of their momentum, with US gasoline falling more than 3% on Monday after futures hit a record last week. US imports of the fuel from Europe soared to a six-month high in the seven days to May 19, according to bills of lading and ship-tracking data.
Still, some crude market gauges show that fundamentals remain strong. The spread between the first two monthly Brent futures reached the strongest premium for prompt contracts since March on Monday, at $2.75 a barrel, an indication that short-term supplies are tight.
There’s also a continuing premium for low sulfur, low density crude supplies amid robust demand and constrained output. Prices in Europe have already soared as shipments from the North Sea and Libya are disrupted, further complicating efforts to replace Russian barrels. The strength is now spilling over into Asia, where a cargo of Malaysian light-sweet Labuan crude fetched a hefty premium of $12 a barrel.