Oil Jumps as OPEC+ Agrees to Raise Output by 648,000Bpd
Crude oil prices edged higher on Monday as output disruptions in Libya and planned shutdowns in Norway offset concerns that an economic slowdown would dampen demand. Last week, the oil group agreed to raise output by 648,000 barrels per day starting from August.
Today, the international benchmark Brent crude was sold for $111.92 per barrel, translating to a 0.26% increase after the previous session closed at $111.63 a barrel. Also, the American benchmark West Texas Intermediate (WTI) was at $108.62 per barrel, a 0.17% gain after the previous session closed at $108.43 a barrel.
Prices fell in early trading in Asian markets as data last week showed that manufacturing activity in the US dropped by more than expected last month, adding to fears of an economic recession and consequent weak demand.
The Organization of the Petroleum Exporting Countries and allied producers (OPEC+) approved an output increase of 648,000 barrels per day in August as planned, but the more consequential production decisions will coincide with US President Joe Biden’s visit to Saudi Arabia that month, RBC Capital Markets said in a note.
Riyadh realpolitik is expected to drive plans to run down remaining spare capacity ahead of the European embargo on seaborne Russian oil imports, RBC noted.
The Biden administration’s main challenge is the lack of abundant spare capacity, with White House officials saying they are not making a specific ask of Saudi Arabia. Instead, they are looking for a collective output acceleration from the Gulf Cooperation Council, according to RBC.
However, outside of Saudi Arabia, RBC does not see any significant spare barrels and believes that a 1 million b/d boost may represent a kind of near-term soft ceiling based on the country’s production in April 2020, at the peak of the price war with Russia.
Meanwhile, the market would not be able to expect supply relief from Iran, as meetings did not indicate a looming diplomatic breakthrough and it appears that Iranians are upping their demands, RBC said.
Output in Libya continues to decline amid turmoil in the country’s oil region, while cost of living protests is disrupting oil supply in Ecuador. RBC said it will watch out for signs of societal unrest in countries like Nigeria, which has also experienced impacts on production due to protests.
While crude oil prices are up again on production outages in Libya and Ecuador, the tailwind is unlikely to last long as demand is being slowed by high prices and a weaker economy, Commerzbank said in a note. READ: EU Moves to Cripple Russia Financial System
US gasoline demand weakened as pump prices averaged $5 per gallon, a new record high, in mid-June, falling only slightly since then, the bank noted. A gallon of gasoline currently costs 55% more than it did a year ago.
As a result, US gasoline demand has been noticeably down year over year in recent weeks, and it remains to be seen whether Americans will scale back their driving activity this summer, Commerzbank said.
The bank expects the US Energy Information Administration and other energy agencies to lower their forecast for global oil demand, but likely in response to the poorer mid-term outlook.
With Saudi Arabia set to announce official selling prices for oil shipments in August, refinery representatives surveyed by Reuters expect the price premium for consumers in Asia to almost regain the record level posted in May, which would be seen as a sign of robust demand and could boost oil prices, according to Commerzbank. # Oil Jumps as OPEC+ Agrees to Raise Output by 648,000bpd
