West Texas Intermediate futures traded near $110 a barrel after closing almost 2% lower on Wednesday. OPEC+ is expected to rubber-stamp an increase in supply for August, but focus is rapidly turning to how much the group’s members with spare production capacity will pump once the current agreement ends.
Futures fluctuated intraday after Russia said it withdrew some Black Sea troops from Ukraine’s Snake Island.
The oil market was roiled by two conflicting drivers in June. On the one hand escalating fears over an economic slowdown as central banks aggressively raise interest rates has weighed on headline prices. Still, physical barrels are fetching enormous premiums as tight crude markets wrestle with outages from Libya to Ecuador.
US gasoline demand is showing signs of softening just three weeks into the peak driving season. The figures were published a day after economic data showed fewer Americans are planning road trips this summer as gas prices soar. The four-week moving average of gasoline supplied fell below 9 million barrels a day, or about 600,000 barrels less than typical seasonal levels, according to the Energy Information Administration.
Focus is on the OPEC+ meeting “and then mainly two topics: spare capacity and the future of OPEC+,” said Hans Van Cleef, a Senior Energy Economist at ABN Amro. “The decision on production levels will most likely be no surprise and we all know that this is just a theoretical rise in production as in practice it will be less.”
Oil is still up around 45% this year as the global economic recovery coincided with upended trade flows from Russia after its invasion of Ukraine in late February. US crude inventories at the key storage hub at Cushing, Oklahoma, have reached critically low levels as refineries produce as much fuel as possible, while the pull for barrels from overseas remains strong.
The world is heading for a “turbulent period” as tightening supplies of oil and liquefied natural gas exacerbate a global energy crunch, Shell Plc Chief Executive Officer Ben van Beurden said in Singapore on Wednesday. “Spare capacity is very low, demand is still recovering,” he said.