Crude Oil Edges Higher on Increased Confidence of Demand Recovery

© Reuters.

By Peter Nurse

AiVIF.com -- Oil prices edged higher Monday, helped by Saudi Arabia increasing the price of its crude for Asia, signaling confidence in the demand outlook, even after a group of top producers agreed to increase production levels.

By 9:15 AM ET (1315 GMT), U.S. crude futures traded 0.2% higher at $119.05 a barrel, after hitting a three-month high of $120.99, while the Brent contract rose 0.2% to $119.93 a barrel, after touching an intraday high of $121.95.

U.S. Gasoline RBOB Futures were down 1.2% at $4.2024 a gallon.

The crude market rose to a three-month high earlier Monday after Saudi Arabia raised its official selling prices for Asian customers in July by more than expected, suggesting that the world’s largest exporter of crude is expecting demand to increase substantially as a number of Chinese cities emerge from severe COVID-19 lockdowns.

Saudi Arabia raised the July official selling price for its flagship Arab light crude to Asia by $2.10 from June to a $6.50 premium, the highest since May, when prices hit all-time highs due to worries of disruption in supplies from Russia.

These gains have slowly dissipated throughout the day as traders continued to digest the decision made late last week by the Organization of the Petroleum Exporting Countries and allies to boost output.

The group, known as OPEC+., agreed to increase production by 648,000 barrels a day for July and August, about 50% more than the increases seen in recent months, bowing to pressure from a number of Western countries, including the U.S., to try to cut prices.

That said, it’s difficult to see the prices falling much more as “the group has failed to hit output targets for months, and this is unlikely to change with the latest increase in targets,” said analysts at ING, in a note.

Additionally, countries in the northern hemisphere, in particular the United States, the largest consumer of crude in the world, typically kick off their driving seasons in July sending demand for gasoline surging.

The Electric Reliability Council of Texas signaled that power demand in the state, one of the largest in the union, is set to break the all-time record this week, surpassing levels reached in August of 2019, long before the days of peak summer heat.

The latest market positioning data, released Friday, showed that speculators increased their net long positions in ICE Brent by 13,365 lots, leaving them with a net long of 210,437 lots as of last Tuesday.

“This is the largest net long that speculators have held since early March,” ING added. “However, it is still considerably below the levels seen in 2021 and the record levels from 2018.”