Oil futures lost ground Friday, but remained on track for weekly gains amid tight global supplies after previously shrugging off an agreement by OPEC+ to boost output by larger monthly increments in July and August.
Price action
- West Texas Intermediate crude for July delivery CL CL00 CLN22 fell 40 cents, or 0.3%, to $116.47 a barrel on the New York Mercantile Exchange, on track for a 1.3% weekly rise.
- August Brent crude BRN00 BRNQ22, the global benchmark, was off 27 cents, or 0.2%, at $117.34 a barrel on ICE Futures Europe, headed for a 1.5% weekly advance.
- Back on Nymex, July gasoline RBN22 rose 0.4% to $4.205 a gallon after ending at a record Thursday, while July heating oil HON22 was up 1% at $4.2512 a gallon.
- July natural gas NGN22 was up 0.3% at $8.51 per million British thermal units.
Market drivers
Oil has been supported this week by China’s moves to ease a weekslong lockdown in Shanghai, a positive for crude demand. Meanwhile, government data on Thursday showed U.S. oil and product inventories fell sharply last week, reflecting in part strong implied demand for gasoline as summer driving season got under way.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, agreed Thursday to raise output by 638,000 barrels a day in July and August, exceeding the 432,000 barrel-a-day increments previously penciled in by the group.
While the move could help fill the gap left by Russian crude exports targeted by embargoes and sanctions in response to the country’s invasion of Ukraine, it isn’t seen as enough to fully offset the expected lost barrels, analysts noted. Moreover, they noted that OPEC+ has already fallen short on previous, smaller production boosts.
Oil wasn’t pressured in the aftermath of the move “because OPEC+ merely packed the production hikes intended for the coming three months into the next two. In other words, more oil will be available to the market only in the short term, if at all,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.
Also, Russia remains a fully fledged OPEC+ member, despite media reports ahead of the meeting that said some members were contemplating suspending the country’s participation in the pact.
“This makes any significant increase in oil production impossible given that Russian output is likely to decline, unless other countries are allowed to ramp up their production more sharply,” Fritsch said.
Meanwhile, the New York Times reported that President Joe Biden has decided to travel to Saudi Arabia this month to rebuild relations with the kingdom that he once vowed to make a “pariah” in response to the assassination of the journalist Jamal Khashoggi.