Commodities

Oil Edges Higher for the Week After U.S. Fuel Prices Reach Record Highs

Oil Prices Experience Mixed Week Amid Market Volatility

By Barani Krishnan

Oil prices increased on both Friday and throughout the week, but gains were tempered by bearish market forces counterbalancing the bullish sentiment, even as fuel prices at U.S. gas stations reached unprecedented levels.

Following two days of significant gains that lifted U.S. crude’s West Texas Intermediate (WTI) grade to an eight-week high and briefly above its U.K. counterpart, Brent, for the first time since 2020, the market saw two days of equally surprising declines. This back-and-forth movement limited the weekly advances for both crude benchmarks.

At Friday’s close, WTI for July delivery settled at $110.28 a barrel, gaining 39 cents, or 0.4% for the day. The previous Friday’s WTI settlement was at $110.49, resulting in a nominal weekly gain, even after reaching an eight-week high of $115.56 on Tuesday.

Brent crude for July delivery rose 57 cents, or 0.6%, to $112.61 a barrel. The global benchmark posted a 1% increase for the week, hitting a seven-week high of $115.69 on Tuesday.

“It has been another volatile week for oil, but Brent and WTI are ending it close to where they started,” said Craig Erlam, an analyst at OANDA. “Price movements remain quite erratic due to multiple influencing factors, including the recent economic concerns and progress in China’s reopening efforts.”

Despite the fluctuations, Erlam noted a prevailing upward trend in crude prices. “Unless there’s a significant immediate downturn in the economy, the bearish outlook for crude remains limited, at least in a meaningful way.”

Oil prices rallied twice during the week, driven by optimism regarding eased COVID-19 restrictions in Shanghai, potentially boosting fuel demand in China, the world’s largest oil importer. Additionally, supportive U.S. oil consumption and stockpile data released by the government aided market stability.

However, uncertainty remains regarding Europe’s potential consensus to ban Russian oil, a move that would reaffirm the EU’s disapproval of Moscow’s actions in Ukraine. Adding to the bearish sentiment were reports indicating that U.S. officials are attempting to organize a meeting between President Joe Biden and Saudi Crown Prince Mohammed bin Salman in Riyadh, which could lead to increased oil supply from the Kingdom.

For over a year, Saudi Arabia, leading the 23-member OPEC+ alliance, has deliberately kept oil production below market demand to support higher prices. OPEC+ countries, which include the original 13 members of the Organization of the Petroleum Exporting Countries and 10 additional nations led by Russia, have maintained modest monthly production increases of just over 430,000 barrels per day, falling short of the demand gap of at least 3 million barrels due to Western sanctions on Russia that have sidelined an equal volume previously available in the market.

This week’s oil price fluctuations occurred despite record-high fuel prices in the U.S., with gasoline prices approaching $5 per gallon and diesel exceeding $6. The spike in fuel prices coincides with a significant shortage of refined oil products, particularly diesel, following the closure and reduced capacity of several refineries during the pandemic.

Existing refineries are currently supplying only what they can or choose to, without investing in expanding capacity or reactivating inactive plants to alleviate consumer pressure. The reluctance to expand may stem from the extraordinary profits currently seen, which could diminish if production capabilities increased, as well as the lengthy timeframe required for new refineries to turn a profit.

Bloomberg estimates suggest that over 1 million barrels per day of U.S. refining capacity—around 5% of the total—has been lost since the COVID-19 pandemic initially depressed oil demand in 2020. Additionally, global refining capacity has decreased by 2.13 million barrels per day, according to energy consultancy Turner, Mason & Co. The outlook indicates that without expansion initiatives moving forward, the supply squeeze is likely to worsen.

Last week, Saudi Energy Minister Abdulaziz bin Salman downplayed any link between soaring fuel prices in the U.S. and OPEC+ actions, attributing the situation to a lack of refining capacity. “There is no refining capacity commensurate with current demand and anticipated summer demand,” he stated.

Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed reinforced this perspective, emphasizing that “there’s no new refining capacity on the horizon. Even if more crude is produced, the existing refineries can’t process it.”

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker