Oil Up as Strong Market Negates Downturn Concerns
Oil climbed as financial markets recovered from last week’s rout, with traders confident that tight supplies will sustain higher prices even if the global economy contracts.
West Texas Intermediate August delivery rose to settle above $109 a barrel after plummeting before the US holiday weekend. Top trader Vitol Group said Chinese demand is recovering in a market that’s struggling to increase supplies, meaning prices are unlikely to drop. Under mounting political pressure to ease the strain on consumers, US President Joe Biden said he’s aiming to decide this week whether to suspend the federal gasoline tax.
Markets have been volatile amid moves by the Federal Reserve and other central banks to cool inflation, raising the specter of an economic slowdown. The idea the US could see a recession within months has traders on edge, said Dennis Kissler, senior vice president of trading at BOK Financial.
“But it seems for now the latest sell off on crude may have been overplayed as near-term demand remains strong,” Kissler said.
The oil market has been vulnerable to any signs of disruption since Russia’s invasion of Ukraine almost four months ago upended global commodity markets. Crude fell by several dollars on Friday on growing concern that the Fed’s pivot toward tighter monetary policy will lead to stunt economic growth. Despite the dramatic dips, crude is still headed for a quarterly gain.
- The more actively traded contract, WTI August delivery, added $1.53 to settle at $109.52 a barrel in New York.
- The July contract that expired Tuesday settled at $110.65
- Brent for August settlement rose 52 cents to $114.65 a barrel.
The US Treasury Secretary said talks are continuing on how to cap the price of Russian oil, possibly through a plan that offers exceptions to a European Union insurance ban. Asked whether such measures would be ready for the Group of Seven leaders meeting June 26-28, she said, “stay tuned.”
Potentially exacerbating disruptions on the supply side of crude markets, Petroecuador said Monday it may have to halt oil exports due to strikes, while Libya’s oil minister reported highly volatile production numbers.
Exxon Mobil Corp. said global oil markets may remain tight for another three to five years, largely because of a lack of investment since the pandemic began. It’ll take time for oil firms to catch up on the investments needed to ensure there’s sufficient supply, CEO Darren Woods said in Qatar.
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