Oil prices have seen a notable recovery following a period of decline triggered by an OPEC+ announcement. The resurgence in prices is attributed to an improved market sentiment and potential optimistic signals from the U.S. Federal Reserve, which could further bolster oil prices.
In the U.S., West Texas Intermediate (WTI) crude held steady above $80 per barrel on Tuesday, maintaining gains from earlier in the week. Specifically, WTI futures for July were priced at $80.29 per barrel, reflecting a 12% year-to-date increase. Similarly, Brent crude for August delivery was priced at $84.19 per barrel, marking a 9.3% increase for the year.
The initial slump in oil prices had been driven by concerns over weak gasoline demand in the U.S. and Asia. In the U.S., gasoline consumption was reported to be 2% lower year-over-year. Asia also experienced a glut in light distillate supply, which led to refinery run cuts, particularly in Singapore where gasoline cracks fell below $5 per barrel.
Despite the current higher gasoline cracks in the U.S., which stand around $22 per barrel, high refinery utilization rates pose a downside risk. Gasoline stocks in the U.S. are at their highest levels for this time of year since 2021, potentially increasing pressure on prices. Delays in the startup of significant refinery projects in Nigeria and Mexico, originally anticipated to boost supply for the summer season, add to these concerns.
Recent economic data from China, the world's largest crude oil importer, has also influenced the market. While retail sales in China exceeded expectations in May, industrial output and fixed asset investment fell short. Analysts, such as Bob Yawger of Mizuho Securities, suggest that the rally in energy prices might be driven by speculators covering short positions rather than fundamental improvements.
Tamas Varga of oil broker PVM echoed this sentiment, noting that economic challenges in China could have global repercussions, though recent market behavior has been somewhat anomalous. The cautious optimism is reflected in comments from Ryan McKay, senior commodity strategist at TD Securities, who pointed out that while the market has rebounded from the OPEC+ announcement, concerns about supply and demand balances in the fourth quarter remain.
In other market movements, Phillips 66 announced the sale of its 25% stake in the Rockies Express Pipeline to Tallgrass Energy for $1.28 billion, and Trafigura agreed to pay a $55 million fine to settle fraud charges from the U.S. Commodity Futures Trading Commission. TotalEnergies sold its upstream business in Brunei to Hibiscus Petroleum for $260 million, using the proceeds to fund further drilling in Namibia.
China's refinery output has also seen a decline, with May's output falling by 1.8% year-over-year to 14.25 million barrels per day, driven by maintenance and weak refining margins. Meanwhile, tensions in West Africa have escalated as Niger halted oil exports via a pipeline to Benin, following the arrest of five Niger nationals.
In the U.S., states like Texas, Louisiana, and Mississippi have sued the federal government to block new decommissioning rules proposed by the Biden administration, which require offshore producers to provide substantial decommissioning funds. This legal battle underscores the ongoing tension between state and federal authorities over energy regulations.
Globally, Russia has reclaimed its position as Europe's largest natural gas supplier, despite reducing pipeline deliveries. Russia accounted for 14% of Europe's gas imports in May, surpassing the United States. In Serbia, President Aleksandar Vucic is reportedly preparing to approve the development of Europe's largest lithium mine, two years after halting Rio Tinto's project.
Additionally, Saudi Arabia is seeking to expand its mining interests in Chile, aiming to secure lithium deals. Singapore has introduced rebates for oil refiners to mitigate the impact of a new carbon tax, and Chinese solar producers have requested government intervention to address overcapacity and plummeting prices in the solar panel market.
