Oil prices slipped on Tuesday in a second day of thin trading in Asia, pulled in opposite directions by China’s COVID-19 lockdowns, which could weigh on fuel demand, and prospects for a supply hit from a possible European oil embargo on Russia.
U.S. West Texas Intermediate (WTI) crude futures similarly dropped 75 cents, or 0.71%, to $104.16 a barrel, after hitting an intraday high of $105.80.
Both benchmark contracts rose more than 40 cents on Monday and extended those gains modestly in early trade on Tuesday.
“The positive driver has been the EU embargo and whether that will be announced,” said Commonwealth Bank commodities analyst Vivek Dhar.
“Your negative driver is Chinese COVID lockdowns. They’re both very important thematics.”
Beijing, reporting dozens of new cases daily in an outbreak that has entered its second week, is mass-testing residents to avert a lockdown similar to Shanghai’s over the past month.
Restaurants in the capital of the world’s top oil importer were closed for dining in, while many other venues were closed and streets were quiet on Tuesday during a five-day Labour Day holiday.
The European Commission is expected to finalise work on Tuesday on a sixth package of European Union (EU) sanctions against Russia over its actions in Ukraine, which would include a ban on buying Russian oil.
The embargo may spare Hungary and Slovakia, both heavily dependent on Russian crude, two EU officials said on Monday.
Tight fuel product supplies are adding to demand for crude, which helped to drive up Brent and WTI by more than 40 cents on Monday after a volatile session.
Record exports from the U.S. Gulf are eating into supplies to the domestic U.S. market, ANZ Research analysts said in a note. ANZ said that according to the cargo tracking service Vortexa Analytics at least 2 million barrels per day of gasoline, diesel and jet fuel flowed out of refineries in the U.S. Gulf in April.
Traders will be closely watching U.S. inventory data. The American Petroleum Institute industry group will report stockpiles for the week ended April 29 on Tuesday, followed by government data from the Energy Information Administration on Wednesday.
Five analysts polled by Reuters on average expected U.S. crude inventories fell by 1.2 million barrels in the week to April 29.
They also forecast distillate inventories, which include diesel and heating oil, declined by 1.2 million barrels, while gasoline stockpiles fell by 300,000 barrels.