Oil Price Spike - June 2

[dan_s]

WTI crude oil futures rose more than 5% to around $63.50 per barrel on Monday, after OPEC+ announced it would raise output in July by the same amount as in the previous two months, easing concerns among those who had feared a larger increase.
> The group agreed on Saturday to add 411,000 barrels a day of supply, reinforcing a major strategic shift that has sent crude prices sinking. This move is perceived as a measure to discipline countries that have been overproducing, such as Iraq and Kazakhstan, while allowing oil producers like Saudi Arabia and Russia to win back market shares.
> Geopolitical risks also continue to provide bullish support to oil prices. Ukraine launched drone attacks on four military airports inside Russia, destroying over 40 warplanes, while Russia pounded Ukraine with missiles and drones. All this comes as the two sides prepare to meet in Istanbul for a second round of peace talks later today.
---------------------
Oil prices climbed on Monday morning despite expectations that OPEC+ will continue to boost production in the coming months. < Actual physical increase in supply is much less since several cartel members have been producing above their quotas. Most of the cartel members are now at maximum production.

Morgan Stanley commodity analysts expect OPEC+ to make three new monthly boosts to its output, returning all 2.2 million bpd it agreed to remove from the market in 2022, by October.

This will keep oil prices lower, the bank noted, writing that “With this latest announcement, there is little sign that the pace of quota increases is slowing down,” as quoted by Bloomberg.

“Higher quota will likely create room for increased production in Saudi Arabia, and to an extent in Kuwait and Algeria. However, we do not expect that quota increases will lead to commensurate production increases for the rest of the ‘Group of 8’,” the analysts also wrote.

Goldman Sachs also expects OPEC+ to add more supply, but only in August. After that, the investment bank said in a note, it expected the cartel to stop bringing production back thanks to “Relatively tight spot oil fundamentals, beats in hard global activity data, and seasonal summer support to oil demand.” < There is more than enough summer demand and decline in exports from Venezuela to absorb the supply increase.

Oil prices, meanwhile, moved higher today despite OPEC+’s latest announcement on production as traders focused on geopolitics and, more specifically, on the latest escalation between Russia and Ukraine, which has once again dimmed the prospects of a lasting peace anytime soon. < IMO the chance of the war in Ukraine ending soon is near zero. Plus, chance of Israel bombing of Iran's uranium enrichment facilities goes up each day.

At the time of writing, Brent crude was trading at above $65 per barrel, with WTI at $63.50 per barrel after a large-scale drone attack by the Ukrainian side on Russian targets that led to expectations of an in-kind response.

Yet there were also fundamentals supportive of higher prices, in addition to the perception that the latest OPEC+ hike has already been factored in by traders.

“More encouraging was a huge spike in gasoline implied demand going tinto what’s considered the start of the U.S. driving season,” ANZ analysts said in a note, as quoted by Reuters. < As I have posted here many times, demand for transportation fuels goes up by ~2 million bpd every year in June.

By Irina Slav for Oilprice.com

[dan_s]

US natural gas futures surged 7% to $3.69/MMBtu, supported by rising demand, lower output, and a broader energy market rally. Forecasts for warmer-than-normal temperatures boosted expectations for air conditioning demand. Meanwhile, gas production dropped to 105.0 bcfd in May from April’s record of 105.8 bcfd, mainly due to seasonal maintenance, including work on Kinder Morgan’s Permian Highway pipeline. The rally was also helped by a 3% jump in oil prices after OPEC+ decided to keep its July output increase unchanged. However, feedgas deliveries to US LNG export terminals fell to 15.1 bcfd from April’s 16.0 bcfd peak, as maintenance and brief outages at facilities like Cameron, Corpus Christi, Sabine Pass, and Freeport LNG limited flows.