Oil Drops In Asian Session, China Locks To Press Demand Prospects

Illustration - Pump operating at sunset at an oil field in Midland, Texas. ANTARA/REUTERS/Nick Oxford/aa.

JAKARTA - Oil fell in Asian trade on Friday, April 29 morning, as China's COVID-19 lockdown weighed on the outlook for crude demand, although fears of supply disruptions from Western sanctions curbing exports of crude oil and oil products from Russia supported prices.

Brent crude futures fell tips 4 cents to trade at 107.55 dollars a barrel by 0040 GMT after rising 2.1 percent in the previous session. The June front-month contract expires on Friday. The more active July contract fell 30 cents to 106.96 dollars a barrel.

U.S. West Texas Intermediate (WTI) crude slumped 49 cents, or 0.5 percent, to trade at 104.87 dollars a barrel after settling 3.3 percent higher Thursday, April 28.

Both contracts will close higher this week, with WTI on track to post a fifth straight month of gains, supported by the growing likelihood that Germany will join other European Union member states in Russia's oil embargo.

However, oil prices have been volatile as Beijing shows no sign of easing lockdown measures despite the impact on its global economy and supply chain.

"With full and partial lockdowns intensifying since March, China's economic indicators have fallen further into the red. We now expect China's GDP to slow further in the second quarter," APAC Wood Mackenzie Chief Economics Yanting Zhou said in a note. the oil market will continue, with the potential for a wider and prolonged lockdown through May and beyond, tilting the near-term risks for China's oil demand - and prices - to the downside."

On supply, OPEC+ is likely to stick to the existing deal and agree on another small production increase for June when it meets on May 5, six sources from the producer group told Reuters on Thursday, April 28.

However, Russia's oil output may fall as much as 17 percent by 2022, an economy ministry document seen by Reuters showed on Wednesday, April 27 as Western sanctions imposed on Moscow over its invasion of Ukraine hurt investment and exports. Russia called it a "special military operation" to disarm Ukraine.

The sanctions also made it harder for Russian ships to deliver oil to customers, prompting Exxon Mobil Corp to declare force majeure for its Sakhalin-1 operation and limit production.