Oil climbed as Chinese central bank assurances of economic support eased fears that a new round of virus lockdowns will crimp crude demand. Diesel markets also spiked amid a global clamor for supplies.

West Texas Intermediate settled above US$101 a barrel after shedding more than 5 per cent in the previous two sessions. China’s central bank pledged to ensure ample liquidity and assist sectors battered by the pandemic even as virus testing expanded in Beijing. The resurgence of COVID-19 has hammered fuel consumption in the world’s second-largest economy.

“Crude prices rebounded as China’s PBOC stepped up efforts to calm markets,” said Ed Moya, senior market analyst at Oanda. “Energy traders are taking a break from the demand destruction trade as everyone awaits China’s mass COVID testing results.”

Traders are focused on Chinese demand and Russian supplies as the war in Ukraine stretches into its third month. Crude prices have oscillated around US$100 a barrel, and key market gauges in Europe have weakened with softer Chinese consumption helping ease shortage concerns. Inflationary pressures are growing around the world, forcing central banks to contemplate monetary-tightening measures that could choke off the economic rebound.

Brent crude’s prompt spread -- the gap between its two nearest contracts -- has collapsed, earlier touching the weakest level since late last year, excluding expiration days, and coming close to trading in contango. However, some fuel spreads are soaring as the uneven pace in recovery for refined products and global supply disruptions wreak havoc in middle distillate markets. 

Benchmark U.S. diesel futures settled at a record for data going back to 1986. The price gap between diesel contracts for immediate delivery soared to the widest-ever premium over later-dated contracts as inventories in the U.S. dwindle.

“Diesel prices once again continue to steal the show,” analysts at wholesale-fuel distributor TACenergy wrote in a note to clients. “There’s still not enough supply to go around.” 

Prices

• WTI for June delivery rose US$3.16 to settle at US$101.70 a barrel in New York.
• Brent for the same month climbed US$2.67 to settle at US$104.99 a barrel

Chinese officials on Monday said virus testing would take place in a further 11 of Beijing’s 16 districts, moving beyond just Chaoyang, where most of the infections have been detected since Friday. A weeks-long lockdown in Shanghai has become more severe, with workers in hazmat suits fanning out to install steel fences around buildings with positive cases over the weekend.

Meanwhile, Rosneft PJSC failed to award a tender to sell millions of barrels of Urals crude as European buyers continued to shun Russian oil, according to traders. Asian refiners are also avoiding the Sokol grade from Russia’s Far East after sanctions were imposed on a tanker company that ships the cargoes.

Related coverage:

• Brent’s futures curve has softened from pricing scarcity to the point where, on Tuesday, it neared a bearish market structure called contango in which immediate supply is available at discounts.
• Russian crude may be about to get shut out of export markets at last, effectively taking away a swath of supply.
• Big Oil is walking away from tens of billions of dollars of Russian assets, but US$100 crude is easing the sting.