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Brent Oil Scores Lift From Saudi Price Rise, China Optimism

Crude-oil futures on Monday were trading mixed, with the U.S. oil moves influenced by a evidence of growing cases of coronavirus and Brent at least partly lifted by enthusiasm over the perceived recovery from the pandemic in China.

Brent, the international benchmark oil, also was supported by Saudi Arabia’s decision to raise the premium of its benchmark grade crude, and all other grades, by a $1 a barrel, according to Reuters, citing people familiar, representing the third straight price increase by one of the biggest exporters of oil and the most influential member of the Organization of the Petroleum Exporting Countries.

Meanwhile, a blockade of oil-producing country Libya remains in place, hindering exports from the north African producer and helping to fuel expectations that supplies for crude may tighten more than expected.

Mustafa Sanalla, chairman of the National Oil Company, told the Financial Times (paywall) in an interview over the weekend that “some regional countries are complicating the negotiations while enjoying the absence of Libyan oil from the market.” An oil embargo has driven Libya’s daily oil production to 100,000 a barrel from an average of 1.2 million, the FT reported.

“Libya is shipping out a lot less crude and this just helps with that tighter supply theme,” wrote Edward Moya, senior market analyst at Oanda, in a daily research report.

“Maybe crude prices have a couple of dollars left in this rally, but the catalyst won’t come from modestly improving economic data, stimulus support for the global economy, tighter supplies, and improving OPEC+ compliance,” he said. “Everyone is bracing for the easing of production cuts in August and that will be when the battle for market share resumes.”

Energy-producing nations have “weathered the COVID-19 demand devastation storm and non-compliance [with output cuts] should become the end-of-summer theme for OPEC+,” said Moya.

On Monday, West Texas Intermediate crude for August was down 5 cents, or 0.1%, at $40.60 a barrel on the New York Mercantile Exchange, after posting a weekly gain of 5% on Thursday, with U.S. markets closed for Independence Day on Friday.

Global benchmark Brent oil for September rose 38 cents, or 0.9%, at $43.18 a barrel on ICE Futures Europe.

U.S. markets continue to contend with growing cases of COVID-19, with the U.S. adding more than 49,000 new cases on Sunday, according to data compiled by Johns Hopkins University. Cases in the U.S. account for about a quarter of the global total of more than 11.4 million infections.

But assets considered risky have seen an uptrend partly on the back of hope that China, one of the biggest importers of crude globally, can continue to show progress from emerging from the viral pandemic.

Last week, markets were supported by data from the Energy Information Administration, which reported Wednesday that U.S. crude inventories fell by 7.2 million barrels for the week ended June 26, coming after three consecutive weeks of increases. Analysts polled by S&P Global Platts had forecast an average crude supply decline of 2.7 million barrels.

On Nymex Monday, August gasoline fell by 1.1% to $1.2457 a gallon, while August heating oil tacking on 1.3% to $1.2472 a gallon.

Meanwhile, Duke Energy Corp. and Dominion Energy said that they were abandoning plans to build a $8 billion natural-gas pipeline in West Virginia and North Caroline, with Dominion agreeing to unload natural-gas assets to Warren Buffett’s Berkshire Hathaway for a total of $9.7 billion, including debt.

“If completed, the pipeline would have brought gas from the most prolific gas shale region —which also has some of the lowest breakeven costs—to the broader market, likely pressuring Henry Hub [gas] prices,” said Robbie Fraser, senior commodity analyst at Schneider Electric, in a daily note.

August natural gas was trading 8.5 cents, or 4.9%, higher at $1.819 per million British thermal units on Monday, after putting in a weekly gain of 12% on Thursday. 

Source: Marketwatch