Oil Prices Climb on Anticipated Fuel Demand and Weaker US Dollar, Reports Reuters

By Laila Kearney

Oil prices increased by approximately 1% on Monday, driven by expectations of robust summer driving demand and rising concerns about supply due to ongoing tensions in the Middle East and drone strikes on Russian refineries.

The decline of the U.S. dollar also contributed to the strength in crude prices. Futures for August delivery settled at $86.01 a barrel, marking an increase of 77 cents, or 0.9%. The price for West Texas Intermediate (WTI) rose to $81.63 a barrel, up 90 cents, or 1.1%. Both benchmarks experienced a gain of about 3% the previous week, making it their second consecutive weekly rise.

Tamas Varga, an analyst at oil brokerage PVM, noted that a key factor behind the price increase is the growing confidence that global oil inventories will significantly decrease during the summer months in the northern hemisphere, driven by seasonal demand for oil products.

Following last week’s notable drop in U.S. crude and gasoline inventories, traders are now awaiting a report due on Wednesday, which may provide additional evidence of sustained strong gasoline demand, according to Bob Yawger, director of energy futures at Mizuho in New York. Yawger emphasized that this positive narrative must be maintained, even as the rise of electric vehicles is increasingly eroding gasoline’s share in the transportation sector.

Jim Ritterbusch of Ritterbusch and Associates cautioned that the gasoline-led rally might wane in the coming weeks as inflation impacts summer travel spending. He anticipates a notable decline in demand next month, particularly as rising retail prices could limit vacation plans.

Geopolitical risks in the Middle East and a surge in Ukrainian drone attacks on Russian refineries have also provided support to oil prices. On Monday, European Union nations agreed on a new set of sanctions against Russia in response to its actions in Ukraine, which includes banning the reloading of Russian liquefied natural gas in the EU for further shipment to other countries.

The softer U.S. dollar made dollar-denominated commodities like oil more appealing to holders of other currencies. The dollar weakened from a nearly eight-week high as traders remained alert for potential intervention to support the yen after it approached the 160-per-dollar level.

Additionally, a dollar index measuring performance against six major currencies had risen on Friday and showed a slight gain on Monday, following data that indicated U.S. business activity had reached a 26-month high in June.

In Ecuador, state oil company Petroamazonas declared force majeure on deliveries of Napo heavy crude for export due to the shutdown of a pipeline and oil wells as a result of heavy rainfall, according to sources.