Oil eases as China lockdowns weigh on demand outlook

© Reuters. FILE PHOTO: Oil barrels are pictured at the site of Canadian group Vermilion Energy in Parentis-en-Born, France, October 13, 2017. REUTERS/Regis Duvignau/

By Florence Tan

SINGAPORE (Reuters) - Oil edged lower on Friday as China's COVID-19 lockdowns weighed on the outlook for crude demand, although supply disruption fears as Western sanctions curb crude and products exports from Russia underpinned prices.

Brent crude futures dipped 4 cents to $107.55 a barrel by 0040 GMT after rising 2.1% in the previous session. The front-month June contract expires later on Friday. The more active July contract fell 30 cents to $106.96 a barrel.

U.S. West Texas Intermediate crude dropped 49 cents, or 0.5%, to $104.87 a barrel after settling 3.3% higher on Thursday.

Both contracts are set to close the week higher, with WTI on track to post five straight months of gains, buoyed by the increased likelihood that Germany will join other European Union member states in an embargo on Russian oil.

Still, oil prices have been volatile as Beijing has shown no sign of easing lockdown measures despite the impact on its economy and global supply chains.

"With both full and partial lockdowns ramping up since March, China's economic indicators have plunged further into the red. We now expect China's GDP to slow further in Q2," Wood Mackenzie's Head of APAC Economics Yanting Zhou said in a note.

"Oil market volatility is set to continue, with the potential for more widespread and prolonged lockdowns into May and beyond, skewing the near-term risks for China's oil demand – and prices - to the downside."

On supplies, OPEC+ is likely to stick to its existing deal and agree another small output increase for June when it meets on May 5, six sources from the producer group told Reuters on Thursday.

However, Russia's oil production may fall by as much as 17% in 2022, an economy ministry document seen by Reuters showed on Wednesday, as Western sanctions imposed on Moscow over its invasion of Ukraine hurt investments and exports. Russia calls it a "special military operation" to disarm Ukraine.

Sanctions have also made it increasingly difficult for Russian ships to send oil to customers, prompting Exxon Mobil Corp (NYSE:XOM) to declare force majeure for its Sakhalin-1 operations and curtail output.