(July 6): Oil steadied, following two days of gains, as flows through the Strait of Hormuz persisted and Opec+ signalled higher supplies, fanning concerns about a glut.
Brent held near US$72 a barrel at the week’s open, while West Texas Intermediate was above US$69. Oil and gas shipping along a US-protected corridor in the waterway showed signs of recovering Sunday, a day after several vessels had performed unexplained U-turns and detours in the energy chokepoint.
Separately, Opec+ members backed another modest rise in quotas for next month, with seven nations led by Saudi Arabia and Russia agreeing to add 188,000 barrels a day in a further roll-back of curbs made several years ago. At present, those extra barrels are theoretical, but the group’s decision signals a desire to add output as conditions continue to normalise.
Brent crude collapsed by 30% in the second quarter as Washington and Tehran agreed to an interim peace deal, clearing the way for a brisk — even if yet incomplete — resumption of traffic via Hormuz. Against that backdrop, Wall Street banks have forecast that prices have scope to slump further this half, with Citigroup Inc flagging the possibility of a return to US$60 by year end.
Opec “countries that have been impacted by the war are in a build-back mode when it comes to production and exports”, RBC Capital Markets LLC analysts including Helima Croft said in a note. “However, we think there is minimal appetite for a supply-driven price washout.”
Major Persian Gulf producers have been ramping up output at a rapid clip. Among them, Saudi Arabia’s exports have already surged close to their pre-war levels as the kingdom gets its tankers through Hormuz. The United Arab Emirates — which quit Opec during the conflict — also restored flows.
See also: Opec+ ratifies planned oil quota hike as Gulf flows rebound
Traders will be on the lookout this week for the release of official selling prices from Saudi Arabia, the UAE and other producers as they attempt to bring more product back to market. For July, Riyadh cut the premium of its main crude grade to Asia to US$9.50 a barrel, down from US$15.50 for June.
Prices:
- Brent for September settlement added 0.2% to US$72.27 a barrel at 10.19am in Singapore.
- Brent touched US$70.14 on July 2, the lowest price since February.
See also: Opec output surged in June as Hormuz flows jumped, survey shows
In signs of growing near-term market looseness, timespreads for benchmarks Brent and Dubai have flipped into a bearish contango pattern, with nearby contracts at a discount to longer-dated ones. Many grades on the physical market are also cheaper than underlying benchmarks.
At the weekend, Iran began a mass funeral for late Supreme Leader Ayatollah Ali Khamenei in a ceremony in Tehran. Khamenei was killed in a US and Israeli attack on the first day of the US-Israeli war in late February.
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