DTN Oil

WASHINGTON, D.C. (DTN) -- Aside from a rallying Brent June contract that expired 1.5% higher on Friday, crude and refined products futures traded on the New York Mercantile Exchange ended April trading with modest losses. The losses were triggered by concerns over a deeper-than-expected contraction in China's fuel demand after municipal authorities in Beijing and Shanghai doubled down on "zero-COVID" policies, undermining a recovery in Asia's largest economy.

Offsetting demand concerns, German government unexpectedly changed its position this week on a Russian oil ban, agreeing in principle to a measured exit from Russian energy trade. The unexpected shift in German posture came after Berlin closed a deal with Polish regulators granting it access to the major seaport of Gdansk that connects German oil infrastructure to the global oil market. German government stipulated, however, that it will require a transitional period to find alternative suppliers that might take months if not longer.

The development arises in a global oil market that has been undersupplied for months now after OPEC+ consistently failed to meet output targets and U.S. shale producers have yet to bring output to pre-COVID levels. Wire news reports on Friday indicate OPEC+ will likely ratify another 430,000-barrel-per-day (bpd) production increase for June when it meets virtually on May 5, brushing aside an expected European Union ban on Russian oil imports.

Further exacerbating a global supply shortfall, Russian oil production will likely fall by as much as 17% this year, according to Russian Finance Minister Anton Siluanov, depressing output from 10.52 million bpd currently to 8.74 million bpd, which would be the lowest output rate in almost 20 years.

Separately, Beijing officials announced on Friday the closure of public schools, theaters, and all entertainment venues as residents of the 21-million-person city undergo mandatory mass-testing for COVID. In Shanghai, a city of 25 million people, authorities continue to resort to extreme lockdown measures that prohibit residents from leaving even the space of their own apartments. Mobility in the city plunged to a level not seen since the Wuhan outbreak of COVID-19 in February 2020.

Analysts believe the lockdowns have the potential to tip China into recession amid popular discontent and collapse in personal consumption and investment. For oil consumption, China's demand is estimated to have dropped by 20% in March and April, accounting for nearly 9% of China's total demand.

On the session, the international crude benchmark Brent contract for June delivery expired $1.75 higher at a $109.34-per-barrel (bbl) two-week high, with the July contract settling the session at $107.14. NYMEX June West Texas Intermediate futures declined $0.67 to $104.69 per bbl. NYMEX RBOB May futures dropped 3.13 cents to expire at $3.4721 per gallon, while the July contract settled at $3.4424 per gallon.

There was very limited trade for the May ULSD futures contract on its last day of trade following this week's short squeeze that spiked the diesel contract to a $5.1354-per-gallon record high on the spot continuous chart on Thursday, with the May contract expiring down 35.37 cents at $4.7817 per gallon. June ULSD futures settled the session at $4.0172 per gallon, up 0.88 cent.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com