Singapore—0252 GMT: Crude oil futures were lower during the mid-morning trade in Asia May 14 as the market remained spooked by inflation and the progress of the pandemic in India, with the restart of the Colonial pipeline providing further headwinds for prices.
At 10:52 am Singapore time (0252 GMT), the ICE Brent July contract was down 34 cents/b (0.51%) from the May 13 settle at $66.71/b, while the June NYMEX light sweet crude contract was down 28 cents/b (0.44%) at $65.41/b.The continuing retreat came after the two markets plunged 3.27% and 3.42%, respectively on May 13.
Analysts attributed the continuing price downtrend to growing concerns over inflation, with US Bureau of Labor Statistics data released May 12 showing the US consumer price index rising 4.2% year on year in April, the fastest rate since September 2008. These fears were exacerbated by data released May 13 showing the US producer price index surging 6.2% on year in April, the largest increase since the Bureau of Labor Statistics began tracking the data in 2010.
Inflationary pressures have prompted unnerved investors to lock in profits by selling crude futures, as they could force the US Federal Reserve to raise interest rates, a move likely to temper risk appetite and potentially energy demand in the longer term.
"Equity markets seem to have largely shaken off the inflation fears, but crude has thus far been unable to do the same," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts May 14.
"These inflation fears have been compounded by worries over the progression of the pandemic in India and, to some extent, the restart of the Colonial pipeline -- this bearish mixture proved too potent for crude and is behind the recent downward movement," Hari added.
India's second wave of coronavirus continues unabated, with 362,727 new infection and 4,120 deaths reported May 12, after a record 4,205 deaths were reported the day before, latest data from John Hopkins University showed.
However analysts say there are signs that the country's infection numbers have peaked, and that fuel demand may be stabilizing.
"India Oil Corp. is once again shopping for crude oil. Following a hiatus since mid-April, it issued three purchase orders for cargoes [May 13]," ANZ analysts said in a May 14 note.
Analysts expect crude prices will bounce back as optimism over increased demand from Europe and the US continue to brighten the demand outlook.
"Yesterday's slump has pushed crude into the oversold territory and I now expect prices to bounce back, but Brent tested $70/b again earlier this week, and its failure to breach that mark tells you that the upside is also limited," Hari said.
