Oil prices experienced a 1% increase on Monday, buoyed by a surge in U.S. gasoline futures and optimistic forecasts for oil demand in the latter half of the year. Concurrently, supplies from Canada and the OPEC+ alliance have diminished over recent weeks.
However, the strength of the dollar and ongoing deliberations regarding the U.S. debt ceiling negotiations limited the gains in oil prices.
The July delivery Brent futures witnessed a rise of 41 cents, equivalent to 0.5%, settling at $75.99 per barrel.
For June delivery, U.S. West Texas Intermediate (WTI) crude experienced a 44-cent uptick, or 0.6%, settling at $71.99 per barrel. The more active July contract, now serving as the front-month, settled at $72.05, marking a 0.5% increase.
The most notable movement in prices was observed in U.S. gasoline futures, which soared by 2.8% to reach a one-month high of $2.6489 per gallon.
“Gasoline powered today’s upside oil price advance with … the approach of the Memorial Day holiday,” stated analysts from energy consulting firm Ritterbusch and Associates in a note. This surge in gasoline prices is associated with the onset of the peak summer driving season, which commences with the U.S. Memorial Day holiday.
According to the International Energy Agency (IEA), there is a looming oil shortage anticipated in the second half of the year, where demand is projected to outpace supply by nearly 2 million barrels per day (bpd). This warning was outlined in the IEA’s latest monthly report, emphasizing the need for attention to ensure adequate supply.
Vitol, a prominent energy company, expressed that Asia is expected to lead the growth in oil demand by approximately 2 million bpd during the latter half of the year. Such an increase could potentially result in a supply shortage, consequently driving up prices.
The previous week saw both oil benchmarks rise by around 2% in their first weekly increase in five weeks. This uptick was a response to the significant disruption caused by wildfires, which led to the closure of substantial crude supplies in Alberta, Canada.
The voluntary production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (collectively known as OPEC+), have also impacted the market since their implementation this month.
In the Kurdistan region of Iraq, oil production continues to decline, with no signs of a resumption in export flows to Turkey’s Ceyhan port following a two-month-long stoppage.
JP Morgan reports that total exports of crude and oil products from OPEC+ have plummeted by 1.7 million bpd as of May 16. Furthermore, it predicts that Russian oil exports are likely to decline by late May.
During their annual leaders’ meeting, the Group of Seven (G7) nations pledged to intensify efforts to counter Russia’s circumvention of price caps on its oil and fuel exports. This move displeased China, the world’s largest oil importer, as the state-backed Chinese newspaper Global Times labeled the G7 as an “anti-China workshop.”
The G7 specifically addressed China on matters such as Taiwan, nuclear arms, economic coercion, and human rights abuses.
Edward Moya, senior market analyst at data and analytics firm OANDA, stated, “Crude prices are in no man’s land as energy traders look to see what happens with both debt ceiling talks and with U.S. and China tensions.”
The upcoming U.S. debt ceiling discussions and the state of U.S.-China relations are contributing factors that are being closely monitored by market participants.
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