Oil prices gained for a fourth straight session on Wednesday as data showed a drawdown in U.S. crude stockpiles, adding to ongoing worries of tight supply, which have offset concerns over a weaker global economy and demand. Brent crude futures for August rose $1.42, or 1.2%, to $119.40 a barrel. The August contract will expire on Thursday and the more-active September contract was at $115.35, up $1.52. U.S. West Texas Intermediate (WTI) crude gained $1.13, or 1%, to $112.89 a barrel.
Both contracts rose more than 2% on Tuesday as concerns over tight supplies due to Western sanctions on Russia outweighed fears of that demand may slow in a potential future recession. U.S. crude inventories fell last week despite production hitting its highest level since April 2020, during the first wave of the coronavirus pandemic. However, fuel stocks rose as refiners ramped up activity, operating at 95% of capacity, the highest for this time of year in four years. “Globally supplies are tight so from a big picture viewpoint, we’re still in a bullish situation. Crude oil inventories are still below average,” said Phil Flynn, analyst at Price Futures Group in Chicago.
Prices rose as G7 countries agreed to explore options to impose price caps on Russian oil exports. “Given that almost 1/5 of global oil producing capacity today is under some form of sanctions (Iran, Venezuela, Russia), we believed there is no practical way to keep these barrels out of a market that was already exceptionally tight,” JP Morgan said in a research note. Norbert Rucker from Julius Baer said the price cap concept was difficult to grasp given the presence of multiple oil prices for multiple grades and thousands of actors along the supply chain. Buyers would need to collude in a cartel and build a credible ‘threat’ backdrop, both of which are challenging,” he said.
OPEC and its allies such as Russia that form the OPEC+ group, began a series of two-day meetings on Wednesday with sources saying chances of a big policy change look unlikely this month. Analysts are concerned that Saudi Arabia and the United Arab Emirates may not have enough spare capacity to make up for lost Russian supply. French President Emmanuel Macron said this week he was told these producers will struggle to increase output further. However, the UAE energy minister said that the country, which is producing about 3 million bpd, does have some spare capacity above its OPEC quota of 3.17 million bpd. Analysts also warned that political unrest in Ecuador and Libya could tighten supply further.