Oil rises, with WTI surging above $110, as supply pressures mount and G7 advances on Russian price cap

Crude oil prices rose again on Tuesday as G7 leaders agreed to explore a ceiling in Russian oil prices and supply pressures increased amid an easing of COVID restrictions in China raised hopes for the application.

WTI crude climbed 1.62% to $11.36, topping $110 a barrel, while Brent crude gained 1.86% to $113.07 a barrel, both up for the fourth session consecutive.

Leaders of the G7 group of developed nations have agreed to explore price caps on Russian oil and gas imports in an attempt to cut Moscow’s funding for its war on Ukraine, Reuters reported. Russia is on track to hit $285 billion in energy revenue this year, a 20% increase from 2021.

Analysts have warned that Russia could respond to further sanctions with its own retaliatory measures, such as reducing flows.

“The impact on global oil supply is unclear: if Russia retaliates, supply could fall, if it allows other third parties to import more Russian oil, supply could increase” , said Deutsche Bank strategist Jim Reid in a daily note.

Even if G7 allies announce price caps this week, it will take time for the price cap mechanism to be developed, Reid noted.

Elsewhere, reports that Saudi Arabia and the United Arab Emirates are pumping oil near capacity and other emerging supply constraints have shifted investors’ attention, analysts said.

OPEC’s two biggest oil producers, the United Arab Emirates and Saudi Arabia, are pumping near capacity and can barely increase production, French President Emmanuel Macron has reportedly said.

UAE Energy Minister Suhail Al Mazrouei has confirmed the release report on Twittersaying the country was close to its maximum production capacity based on its current OPEC+ production benchmark of 3,168 million barrels per day.

“That’s probably the last thing the world needs to hear right now, given that Saudi Arabia and the United Arab Emirates are currently seen as the world’s two available swing producers,” said Jeff Halley. , senior market analyst at OANDA.

OPEC is due to hold a meeting on Wednesday to discuss supply, as members struggle to meet targets. It will meet on Thursday with non-OPEC members.

Another threat to oil production is political unrest in Libya and Ecuador, which could squeeze about 1.1 million barrels a day from flows already hit by Russian sanctions, according to Halley.

Libya’s National Oil Corporation said on Monday it could declare force majeure on more than half of its daily production, while Ecuador said it could halt oil production if vandalism and Oil well roadblocks persist, Bloomberg reported.

While supply is under pressure, demand could increase after China eased COVID-19 restrictions in a major policy shift. The government has cut quarantine times for travelers entering the country in half, and Shanghai and Beijing said on Monday they had no new cases of the virus.

Weekly US inventory data from the American Petroleum Institute is due Tuesday for the week ending June 24. If crude inventories continue to build, the release could have a bigger-than-normal impact on prices, DailyFX analysts said.

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