Oil futures shook off early losses on Tuesday to finish higher, as tight supply concerns resurfaced with President Joe Biden’s vow to take action on climate change seen threatening U.S. production and with capacity limits expected to cap OPEC output.
Price action
West Texas Intermediate crude for August delivery
CL00,
-1.88%
CL.1,
+1.32%
CLQ22,
+1.32%
rose $1.62, or 1.6%, to settle at $104.22 a barrel on the New York Mercantile Exchange after trading as low as $99.84. The contract, which expires at the end of Wednesday’s trading session, ended at its highest since July 8, according to Dow Jones Market Data.
September Brent crude
BRN00,
-0.04%
BRNU22,
-0.04%,
the global benchmark, tacked on $1.08 cents, or 1%, to $107.35 a barrel on ICE Futures Europe — the highest settlement since July 4. Both WTI and Brent rose more than 5% on Monday.
Back on Nymex, August gasoline
RBQ22,
+1.20%
added 1.3% to $3.3075 a gallon, while August heating oil
HOQ22,
-0.16%
shed 0.8% to $3.6268 a gallon.
August natural gas
NGQ22,
-1.89%
lost 2.9% to $7.264 per million British thermal units following a gain of 6.6% on Monday.
Market drivers
Biden’s visit to Saudi Arabia last week has “already become old news as traders refocus on the major influences on the oil market right now: the Russia-Ukraine war, OPEC+ policy outlook, and recession concerns linked to high inflation, COVID lockdowns in China, and aggressive central bank policy around the globe,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.
Oil had rebounded sharply on Monday, with support tied in part to indications Biden’s visit late last week to Saudi Arabia failed to produce any breakthroughs in terms of increased oil production. News reports cited Saudi officials saying market logic would dictate production decisions by the Organization of the Petroleum Exporting Countries and its allies.
Concerns over OPEC’s inability to significantly raise production and talk of more U.S. restrictions on fossil fuels created an environment for higher oil prices, said Phil Flynn, senior market analyst at The Price Futures Group.
Meanwhile Biden vowed “strong executive action” on combating climate change. So far, his actions on climate change have “included reducing federal lands for drilling oil and gas,” Flynn told MarketWatch.
Meanwhile, some expectations for a bigger interest-rate hike by the European Central Bank at its meeting on Thursday led to strength in the euro
EURUSD,
+0.83%,
pressuring the dollar and helping to boost dollar-denominated prices of oil, he said.
Still, the upside for oil was limited by fears that persistent inflation will drive the Federal Reserve and other major central banks to continue tightening monetary policy aggressively, threatening a recession or sharp slowdown in economic growth.
“As we move further into the second half of the year, economic trends and central bank policy expectations will become increasingly important to the demand dynamics of the global oil market,” said Richey. “Increasing growth worries could begin to offset the bullish supply-side impact of the Russia-Ukraine war and send prices back below key technical price support in the mid $90 [a] barrel range.”
The energy market is also “watching with great interest” whether or not the Nord Stream pipeline will restart later this week as planned, said Flynn.
Weekly U.S. petroleum supply data is expected from the American Petroleum Institute, an industry trade group, after the close on Tuesday. Official government data from the Energy Information Administration is due Wednesday morning.
Analysts surveyed by S&P Global Commodity Insights forecast gasoline stocks, as reported by the EIA, to show a counterseasonal rise of 400,000 barrels due to heavy refinery runs. Crude stocks are expected to fall by 200,000 barrels, while distillate supplies are seen rising by 800,000 barrels.
