Oil markets volatile as Saudi Arabia hikes crude prices
Oil prices continued to hover around the $120 milestone on both major benchmarks heading into Wednesday, after Saudi Arabia took advantage of tightening supplies by raising its July crude prices.
Brent Crude was slightly up 0.44 per cent to $120.30 per barrel while WTI Crude had crawled 0.39 per cent to $119.30 on Tuesday night – with trading choppy across the day, as markets remain volatile amid geopolitical uncertainty.
Saudi Arabia hiked the July official selling price (OSP) for its flagship Arab light crude to Asia $2.10 from June to a $6.50 premium over Oman and Dubai quotes.
This is just off an all-time-high recorded in May when prices hit highs due to worries of disruptions in supplies from Russia.
Craig Erlam, senior market analyst at OANDA told City PM: “The oil market is extremely tight and Western sanctions have exacerbated that for those looking to pivot away from Russia. Pricing power is very much with suppliers of crude and I don’t expect this move will affect Western demand for Russian oil. Rather, it could just further encourage those that have refused to condemn the Kremlin to ramp up purchases of discounted Russian crude, as we’ve already seen.”
The price increase followed a decision last week by OPEC+ to boost output for July and August by 648,000 barrels per day – which is 50 per cent more than previously planned, but remains a modest target amid rebounding pandemic demand.
The extended cartel has also persistently failed to hit raised output targets this years, falling short of April’s targets by a whopping 2.7m barrels per day amid constraints in global refining capacity.
Citibank and Barclays have raised their price forecasts for 2022 and 2023, forecasting Russian output and exports to fall by around 1-1.5m barrels per day by the end of the year.
Meanwhile, UBS has highlighted that US crude stockpiles were down 5.1m barrels this week, well ahead of analyst expectations – putting more pressure on supplies.
Separately, Italy’s Eni and Spain’s Repsol could begin shipping small volumes of Venezuelan oil to Europe as soon as next month, according to news agency Reuters.