Oil price watchers said they’re hoping supply and demand data released by OPEC and others this week will provide direction for a market that has swung wildly in recent weeks.
Traders have had to weigh several factors — all laden with uncertainty — from war to recession to economic sanctions as they try to assess supply, demand and where prices are heading. Last week again showed how quickly these assessments and market sentiment can change.
The market came off the long July 4 holiday weekend in the United States with a very bad hangover. In the session after the three-day weekend, recessions fears seemed to take hold as oil plummeted 10 percent to settle at $99.50 per barrel, the first time it settled below $100 per barrel since late April.
By the end of the week, however, the Labor Department reported that U.S. employers added 372,000 jobs in June, sharply higher than expected and aign that the U.S. economy remained strong. Oil rallied Thursday and Friday, and ended the week at $104.79 a barrel.
Tamas Varga, an analyst at London oil broker PVM, said he expects to comb over the monthly market reports from the Organization of the Petroleum Exporting Countries, the International Energy Agency and the U.S. Energy Department to determine if supply and demand fundamentals have in fact changed.
“Given the relatively constructive demand data and the inability of OPEC+ to go anywhere near their allocated quota,” he said, “I believe oil will limp through summer unhurt.”
OPEC+ is an expanded cartel that includes OPEC and a handful of non-member state allies, such as Russia. In June, it opted to raise its production quotas, but few members have the capacity to boost production to meet those levels, analysts said. As a result, global supplies remain tight.
The market has slipped into situation known as backwardation, when futures prices are higher than spot prices. That suggests traders are fretting over a lack of supply.
That’s to be expected. With Russian oil taboo in many markets because of its invasion of Ukraine, few new supplies are coming onto the market to replace it. Many OPEC+ nations can’t meet their production quotas Civil unrest in Ecuador has curbed procution there while a Russian court last week moved to block oil flowing out of Kazakhstan, ostensibly because of oil spill concerns.
Making matters worse, the U.S. government tightened the sanctions on Iran even further. That makes the chance that Iran returns to the oil market by way of a revived nuclear agreement fleeting at best.
“We still think there’s significant upside risks to oil,” said Phil Flynn, an analyst at The PRICE Futures Group in Chicago.
Those risks — supply-side challenges and healthy-for-now demand — could add to what’s already looking like a volatile environment for crude. A visit by President Biden this week to Saudi Arabia could calm the market’s nerves. But it’s a very slim one.
Saudi Arabia can only do so much and does not, by itself, have the capacity by itself to alleviate global supply shortages. The White House knows this and insists the meeting’s agenda is stacked with matters not directly related to the price of oil.
“Biden will face a reality check,” said Clay Siegle, an independent energy strategist in Houton. “ Saudi Arabia is not a ‘magic kingdom’ that can make high fuel prices disappear.”
