Oil on track for weekly gains amid global supply concerns

Prices of the two major benchmarks are down on Friday but are still on track for weekly gains, supported by the prospect of a tight market due to rising gasoline consumption in the United States in summer and also the possibility of an EU ban on Russian oil.

The global benchmark, the Brent crude is down 0.60%, currently trading $113.48 a barrel, but still on track for a gain of about 4% this week. The U.S. benchmark, the West Texas Intermediate (WTI) crude is down 0.64%, currently trading $113.36 a barrel. WTI is set for a weekly gain of about 0.5%.

U.S. Energy Information Administration stated that the U.S. gasoline stocks fell by 482,000 barrels last week to 219.7 million barrels. The start of the summer driving season in the United States normally entails increased consumption.

What you should know

  • Both benchmark crude contracts were also supported as the European Commission continued to seek unanimous support of all 27 EU member states for its proposed new sanctions against Russia, with Hungary posing a stumbling block.
  • A top Hungarian aide said the country needed 3.5 to 4 years to shift away from Russian crude and make huge investments to adjust its economy. Hungary could not back the EU’s proposed oil embargo until there was a deal on all issues.
  • Bank of America said in a note, “We believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150 per barrel.”
  • To put things into perspective, oil prices jumped after the Iranian revolution in 1979 and a long war between Iran and Iraq (1980-88). Even with these increases in price, we can recall that a global recession will hinder fuel demand and ultimately force oil prices downward.

On the topic of the U.S. summer drive, UBS analyst Giovanni Staunovo had this to say, “Oil prices have risen to the highest level since end of March, benefiting from renewed declines in U.S. oil inventories. The U.S. driving season and strong travel demand should help (prices). With supply growth lagging demand growth, the oil market is likely to stay undersupplied. Hence, we remain positive in our outlook for crude prices.”

OPEC+ is set to stick to last year’s oil production deal at its June 2 meeting and raise July output targets by 432,000 barrels per day, six OPEC+ sources told Reuters. The OPEC+ members would thereby rebuff Western calls for a faster increase to lower surging prices. Oil prices have gained about 50% so far this year, with many analysts suggesting more upside in the short term.

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