Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Forget June Plunge; Oil Back on High Octane from Supply Squeeze

Commodities Jul 01, 2022 02:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

By Barani Krishnan

Investing.com -- A month can seem like a long time ago on the oil market. 

Crude prices flew higher on Friday as trading began for July on the back of fresh supply scares out of Libya — which called for a force majeure in exports — and Norway, where an oil workers’ strike loomed. 

Barely 24 hours after June’s price plunge — the first for a month since November — it was a sign that oil bulls had recaptured at least some of their mojo even as an impending recession threatened market outlook over the coming months.

“Crude is rebounding on the back of the quarter-end selling being done and more issues in Libya,” said Scott Shelton, energy futures broker at ICAP) in Durham, North Carolina. 

“It’s so easy to look at all of this and just be bullish. My sense is that people are just heading to the sidelines as they are tired of the extreme noise and  ‘hot takes’ on demand destruction and recession fears. At some point, crude oil prices are going to make a parabolic move in my view that will be led by the physical market as there simply isn’t enough oil production to offset refiner demand with the losses from Libya, Russia and OPEC constantly failing to make [its] quota.” 

U.K. bank Barclays, a typical cheerleader for oil, concurred, saying it “still see[s] risks to prices as skewed to the upside on tight inventories, limited spare capacity and muted non-OPEC+ supply response.”

New York-traded West Texas Intermediate, or WTI, settled up $2.67, or 2.5%, at $108.43 per barrel. The U.S. crude benchmark finished June down more than 7%.

London-traded Brent crude, the global benchmark for oil, settled up $2.60, or 2.4%, at $111.63 on its most-active September contract. It fell nearly 6% for all of last month.

Libya’s National Oil Corporation, or NOC, declared force majeure on Thursday at the Es Sider and Ras Lanuf ports as well as the El Feel oilfield. Force majeure was also in effect at the ports of Brega and Zueitina, Reuters said in a report.

It said production at NOC has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 bpd — a drop of 865,000 bpd compared to production in “normal circumstances.”

Elsewhere, 74 Norwegian offshore oil workers at Equinor’s Gudrun, Oseberg South and Oseberg East platforms will go on strike from July 5, likely halting about 4% of Norway’s oil production, the Lederne trade union was quoted saying on Thursday, 

Offsetting some of the bullish impact from the events in Libya and Norway was news that Ecuador’s government and indigenous groups’ leaders have reached agreement to end more than two weeks of protests that had led to the shut-in of more than half of the country’s pre-crisis 500,000 bpd oil output.

Over the next two months though, oil market participants have two major challenges coming their way that could pull prices in both directions: the Atlantic hurricane season and an increasingly-likely U.S. recession.

While hurricanes come and go each year, any storm in 2022 could have a rippling impact on energy infrastructure, supply and prices due to the squeeze already on barrels from sanctions piled on Russia; the apparent inability of OPEC+ to produce what consuming countries want; and US shale being slower than ever in returning to its pre-pandemic drilling glory.  

“You cannot afford to lose a single barrel this summer. That’s the reality,” said John Kilduff, founding partner of New York energy hedge fund Again Capital. 

Equally crippling to oil could be the evolving recession in the United States.

US gross domestic product likely contracted by an estimated 1% in the second quarter of 2022, the Atlanta Federal Reserve said on Thursday. It was the first official forecast of recession by a division of the central bank, after the 1.6% economic decline in the first quarter

Economists say the recession narrative could get uglier over the next 30 to 60 days as the Fed continues tightening the screws on US interest rates.

With officials at the central bank racing to remove liquidity as quickly as possible from the financial system for the Fed’s rate hikes to have a maximum neutralizing impact on inflation, there is always the danger of leaving markets illiquid in a sudden turn of events.

Economists say the United States may be witnessing the beginnings of a real economic shakedown, only that it’s too numb to notice because of the miraculous resilience of its consumers insulated by two years of pandemic aid money; a housing market still running on that old stimulus energy; and stock markets often coming back after a few days of selloffs.

But U.S. consumers won’t be superheroes forever and the slide into the economic abyss could come faster than thought, warn analysts.

In oil markets especially, “the prospect of a recession has created more two-way price action in recent weeks, preventing any unsustainable surges in the price of crude [even] as China reopened” from COVID shutdowns, said Craig Erlam, analyst at online trading platform OANDA. 

On Thursday, oil producer alliance OPEC+ confirmed a previously-agreed production of nearly 650,000 barrels per day for July and August — up more than 50% from June. 

The Saudi-led and Russia-supported alliance of 23 oil producers said the higher output will be necessary to meet demand projected over the next two months from people making up for road and air travel limited in the past two summers by the coronavirus pandemic.

Yet, OPEC+ avoided discussing policy from September onwards — signaling that it wasn’t sure of demand beyond the summer.

Forget June Plunge; Oil Back on High Octane from Supply Squeeze
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Andrew Ulferts
Andrew Ulferts Jul 02, 2022 9:08PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I like it Barani. We are seeing why oil companies have united in keeping bbls off of the market. I thought COVID was the reason, and maybe it was, but i think we’ve all been waiting on a recession so long now it is expected. Well played O & G cartels, well played. More ups and downs to come Barani. I think I’ll swing trade for a while. I need to practice shorting like the big boys!
Alan Rice
Alan Rice Jul 01, 2022 5:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Near -term Brent :$150 ??
Adamo Nals
Adamo Nals Jul 01, 2022 3:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
150-200 a barrel incoming. 100% its coming. We are beyond short supply.
Barani Krishnan
Barani Krishnan Jul 01, 2022 3:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Let's see. There is an alternative school of thought on that.
Pavan Patel
Pavan Patel Jul 01, 2022 3:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Barani Krishnan
Barani Krishnan Jul 01, 2022 3:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
85 and below post August
Leo Mu
Leo Mu Jul 01, 2022 3:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Cheap oil pollute the environment. Leftists don’t like it.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email