By Peter Nurse
Investing.com — Oil prices slipped slightly Monday on concerns that China will struggle to fully reopen after its prolonged COVID-19 lockdowns, but prices remain elevated as the global supply remains tight.
By 9:25 AM ET (1325 GMT), U.S. crude futures traded 0.1% lower at $110.16 a barrel, while the Brent contract traded flat at $110.00 a barrel.
U.S. Gasoline RBOB Futures were down 0.7% at $3.8114 a gallon.
A number of cities in China, the largest importer of crude in the world, have suffered from extended lockdowns in an attempt to crush an outbreak of COVID-19. This has severely curtailed industrial production and thus reduced demand for crude.
Shanghai, the country’s commercial hub, reopened a small part of the world’s longest subway system on Sunday after some lines had been closed for almost two months, amid hopes that the city can fully reopen at the start of June.
However, just as this is happening, Beijing, the country’s capital, has reported a record number of Covid cases during its current outbreak, reviving concern that it may face a similar lockdown situation.
That said, U.S. fuel prices have soared to record highs over the past two weeks, and could accelerate further during the run-up to Memorial Day on May 30, which tends to indicate the start of the peak driving season in the United States.
The extent of strong U.S. demand can be shown by the New York-traded West Texas Intermediate grade trading slightly above London’s Brent, reprising its brief premium from last week against the world oil benchmark.
Turning to the supply side of the equation, Saudi Arabia’s oil minister Prince Abdulaziz signaled his country’s support for Russia as a member of the so-called OPEC+ group, resisting pressure from its traditional allies in the West to isolate Moscow.
OPEC has stuck by its practice of fixing monthly production quotas despite the increasing evidence that Russia is unable to increase its output, due to western sanctions. That and problems in other exporting nations had led to OPEC+ undershooting its production target by over 2 million barrels a day in April, helping create a very tight market as demand recovers from the pandemic.
Additionally, Bloomberg reports that China is snapping up Russian ESPO crude, ensuring that there is still a customer for Russia’s supply even if many countries in the West are avoiding it.
Twenty of the 21 oil cargoes that have been loaded at the port of Kozmino so far this month are heading for China, according to shipping analytics company Vortexa, Bloomberg report, while flows over April and May are expected to be 20% higher than normal, according to estimates from shipping service Braemar.
In the U.S., despite the strong demand for energy, shale companies in the U.S. have only marginally increased their investments in shale drilling, with the latest report from Baker Hughes showing that the Oil Rig Count in the U.S. gained only 13 units, up to 576.