DTN Oil

WASHINGTON (DTN) -- After a three-session rally, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved shallowly mixed in early trade Thursday as renewed COVID-19 controls in parts of Shanghai, China's financial capital of 25 million people, countered robust demand for refined fuels in the United States, where gasoline demand is rising despite record high retail prices for the transportation fuel that are approaching $5 gallon.

Gasoline inventories in the United States fell to the lowest seasonal level in eight years last week, according to data from the U.S. Energy Information Administration, as demand for gasoline spiked above 9.1 million barrels per day (bpd) -- the highest weekly rate this year. Despite sky-high prices at the pump, there are no signs of visible change in U.S. driving patterns, with the seasonal uptick in summer fuel demand as seen in previous years on track. Goldman Sachs economists forecasted this week gasoline prices will need to go much higher from where they are now to have a meaningful impact on demand. The bank warned of likely price spikes and fuel shortages this summer as China hums towards reopening its economy and the European Union turns down imports of Russian oil and refined fuels.

Potentially weighing on prices Thursday morning are fresh COVID-19 curbs in Shanghai, where a reopening from a three-month lockdown had only recently occurred. Shanghai will lockdown seven districts this weekend, restricting movement for millions of people to conduct mass COVID-19 testing after discovering nine cases. The moves are raising concern that the city's reopening is backsliding as officials fear a resurgence of infection after social and economic activity resumed. Residents face the risk of being confined to their homes for another two weeks if any infections are discovered during mass testing, in line with China's zero-COVID policy. In the capital Beijing, which has been struggling with a long but low-level COVID flareups, authorities ordered the tightening of rules again after a bar cluster ended a five-day streak of zero community spread.

Analysts predict China will be stuck in a slowly evolving loop as it sticks to its zero-COVID policy, making a strong rebound in its economy virtually impossible. Overnight trade data out of China showed crude oil imports fell 1.7% from a year ago over the January to May period, highlighting a drop in oil demand as Beijing restricts mobility for its people.

Despite the lockdowns, exports grew by 16.9% last month from a year earlier to US$308.25 billion compared to 3.9% growth in April. China's imports, meanwhile, grew by 4.1% in May to US$229.49 billion, up from an unchanged reading in April, and above expectations for a 0.6% rise.

In the United States, investors await the release of the Consumer Price Index for May on tap for Friday morning. The U.S. Dollar Index weakened against its global peers, trading near 102.335 amid uncertainty over what the inflation indicator will show. Market estimates U.S. CPI was stable at 8.3% on an annual basis last month while core CPI which excludes food and energy may shift lower to 5.9% from April's 6.2% print.

Near 7:30 a.m. EDT, NYMEX West Texas Intermediate for July delivery slipped $0.34 to $121.75 barrel (bbl), while international crude benchmark Brent contract for August softened to $123.30 bbl. NYMEX RBOB July contract increased 1.1 cents to $4.2329 gallon and ULSD July futures gained 0.97 cents to $4.3240 gallon.

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