Oil prices rise for the fourth day
On Wednesday, oil prices rose for the fourth session as limited supply issues outweighed worries about a slowing global economy.
The price of August Brent crude futures was slightly changed at $117.9 per barrel. Thursday marks the expiration of the August contract, while the more active September contract was trading at $114.06, up 23 cents or 0.2 percent.
West Texas Intermediate (WTI) oil futures in the United States increased by 44 cents or 0.4 percent to $112.20 a barrel.
On Tuesday, both contracts increased by more than 2% as supply shortages brought on by Western sanctions against Russia trumped concerns that demand may decrease during a potential future recession. The Organization of the Petroleum Exporting Countries (OPEC) has been viewed as having only Saudi Arabia and the United Arab Emirates members who have extra capacity to replace lost Russian supplies.
Investors adjusted their positions but maintained an optimistic outlook on the assumption that Saudi Arabia and the United Arab Emirates would not be able to considerably increase supply to meet growing demand, driven by a rise in jet fuel. On Wednesday, a series of two-day meetings for OPEC and OPEC+, including allies like Russia, will be underway. According to insiders, the odds of a significant shift in policy this month are slim.
As the United States enters the summer, concerns about potential supply interruptions from hurricanes will also keep oil prices above $110 per barrel.
If oil prices rise above $130, China confirms its support for refiners
China said on Wednesday that if global oil prices rise beyond $130 per barrel, it will subsidize refiners, establishing an existing fuel policy that closely watches worldwide markets while also aiming to protect consumers from price shocks.
The subsidies will be calculated based on real gasoline and diesel sales volume, and the freebies will be extended for two months if oil prices regularly remain over $130. Since 2016, retail fuel prices in China have been examined every ten working days to reflect global crude oil prices when benchmark prices fluctuate between $40 and $130.
However, after global oil exceeds $80, prices move more slowly, and retail prices vary only a little or freeze if global markets extend beyond the $40-$130 range. On Wednesday, benchmark Brent crude futures were trading about $118 per barrel, having been rangebound between $100 and $120 for the previous three months or so as investors considered limited supplies amid the Ukraine crisis and a sluggish global economy.
OPEC Plus’s accelerated oil production pales
Since the start of the coronavirus epidemic, the global economy has been hit by various shocks. These include residual supply limits from the pandemic’s aftermath and those from Russia’s invasion of Ukraine, both of which increased pressure on global prices. Furthermore, commodity market speculation has resulted in dramatically higher oil prices and hence higher prices at the pump and for many goods and services. Higher energy prices are a major political issue for US President Joe Biden and many other foreign leaders dealing with strikes and rallies. Working to increase the global oil supply is one-way world leaders may try to cut prices. Biden, in particular, has a big opportunity to enhance global output by breaking with Trump’s failed “maximum pressure” campaigns and eliminating unilateral – and certainly illegal – sanctions against Iran and Venezuela.
To demonstrate the potential benefits of abandoning Trump’s failing tactics toward Venezuela and Iran, compare their prospective oil production to OPEC Plus, an extended and loosely organized group of oil-producing countries. Biden and other international leaders have been pressuring OPEC Plus to increase output. The consortium recently announced an agreement to expedite expected increases in oil output for July and August. The total production increase for these months will now be 648,000 barrels per day, but this does not reflect a new commitment to raising the total supply.
Two factors suggest that increased oil production from either country would be welcomed in the short and medium-term: first, it is unclear whether OPEC Plus will be able to meet even the recent increase in production, with some analysts predicting only half of the rise in July and August being met; and second, governments, including the United States, appear to view increased production from Venezuela and Iran as possible in this time frame.
