Crude Oil Weekly Review: Four consecutive weekly rises, Saudi Arabia "snatchs the fire" as demand soars

International oil prices hit a three-month high this week, and are expected to close for the fourth consecutive week. Saudi Arabia raised prices and cut supply, suggesting that OPEC+’s goal of expanding production will be difficult to achieve, and it will be difficult for Europe to get rid of its oil dependence on Russia. In addition, the supply and demand situation in the market remains tight as fuel demand surges as the northern hemisphere summer driving season is in full swing.

As of press time, NYMEX crude oil futures rose 1.74% to $122.35 per barrel; ICE Brent crude oil futures rose 2.47% to $124.07 per barrel. Both cities hit new highs since March 9 this week, at $123.18 a barrel and $124.40 a barrel, respectively.

OPEC+ expansion target is difficult to achieve

OPEC+ decided last week to expand crude oil growth to 648,000 barrels per day in July and August, a 50% increase from the original plan. Still, prices rose as most OPEC+ members had little room to increase production to make up for supply cuts caused by Russia's sanctions.

Global supplies of crude and petroleum products remain tight as Western sanctions hamper exports from major producer Russia, with most refineries already nearing capacity to meet growing demand driven by a post-pandemic economic recovery.

Stephen Innes, managing partner at SPI Asset Management, said in a note: “While all participating countries (including Russia) continue to advance proportionally to their expanded monthly production growth targets, it is unrealistic to eventually approach the overall digital production increase expectations. of."

Saudi state oil company Aramco said on Sunday (June 5) that Saudi Arabia raised the official selling price (OSP) of its Arabian Light crude oil to Asia in July compared with June $2.10 to $6.50, above the Oman/Dubai average. This is the first time in a month that Saudi Arabia has raised the official selling price of crude oil again.

Saudi Aramco has notified at least four buyers in Asia that it will cut crude contracts for July, people familiar with the matter said on Thursday. The move suggests that the supply of Saudi crude oil in the market is very tight. Demand for Saudi crude has been climbing as the European Union has begun phasing out Russian crude and European buyers are racing to find other suppliers.

"While the expansion of the production increase is well-timed, it has fallen short of demand growth expectations, especially given the EU's partial ban on Russian oil imports," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

Europe is hard to shake off its dependence on Russia for energy

EU leaders agreed last week to cut oil imports from Russia by 90 percent by the end of the year. Before Russia invaded Ukraine, nearly half of Russia's crude oil and petroleum product exports went to Europe, according to the International Energy Agency (IEA).

Russian President Vladimir Putin said on Thursday that the West will not be able to completely stop using Russia's energy resources in the next few years, despite efforts to reduce its reliance on Moscow for energy supplies. Sanctions have reduced oil supplies to global markets while prices have risen.

With the supply shortage caused by Western countries' imposition of import embargoes on Russian oil not going to be filled anytime soon, investors are already starting to consider the fact that the imbalance in the supply and demand mechanism will persist for longer after the sanctions take effect.

Citigroup and Barclays raised their crude oil price forecasts for 2022 and 2023 on Monday due to tighter Russian supplies. The supply gap caused by Russia's oil production cuts is between 1 million and 1.5 million barrels per day.

"Any declines in the oil market will be limited as global supply-demand tensions for crude and refined products remain a strong support factor," said Jeffrey Halley, senior market analyst at OANDA.

Jeremy Weir, chief executive of global commodities trader Trafigura, said oil prices could hit $150 a barrel soon and move higher, and demand could be destroyed by the end of the year. He noted that Russian oil production has fallen by 1.3 million barrels per day, or more than 1% of global demand, and that the country's output of diesel and gasoline refined products has fallen similarly.

surge in demand

U.S. gasoline inventories unexpectedly fell by 812,000 barrels last week, suggesting that demand for motor fuel was resilient during the peak summer months despite high gasoline prices. Despite the build-up in U.S. commercial crude oil inventories, the Strategic Crude Oil Reserve remains at a record low.

"Commercial crude inventories have increased in part due to inventory shifts due to reductions in the Strategic Petroleum Reserve, but these inventories are expected to continue to decline sharply in the coming months, supporting bullish sentiment," said Tony Headrick, energy market analyst at CHS Hedging.

"The record surge in gasoline and diesel consumption during the U.S. summer driving season, with gasoline prices surging alongside lower inventories, suggests the market is vulnerable to supply disruptions," Fitch analysts said in a note.

Warren Patterson, head of commodities research at ING, said: "It's hard to see a clear downside in the coming months and petrol supply and demand will likely only tighten further as driving season demand is fuelling further."

"The oil market is expected to remain tight as the supply side continues to show low inventories," OANDA analyst Edward Moya said in a note. "Oil inventories are likely to see further drawdowns as demand picks up during the driving season."

Analysts at JPMorgan Chase & Co. estimated that Russia's oil product exports fell by about 500,000 to 700,000 barrels a day as it now finds it more difficult to sell fuel than crude. “Unless new capacity in the Middle East comes online faster than we expect, fuel shortages will only get worse as demand for transportation fuel picks up in the northern hemisphere summer.”

NYMEX crude oil is expected to rise above $124

On the daily line, NYMEX crude oil is in the upward 3 waves starting from $98.20, with the upper resistance at the 161.8% target at $124.52. On the hourly chart, oil prices have started an upward iii-wave trend from $111.22, and the market outlook is expected to touch the 76.4% target at $123.99 and the 85.4% target at $125.50. Wave iii is a sub-wave of the upward (iii) wave that started at $103.25, and wave (iii) is a sub-wave of the upward ((iii)) wave that also started at $98.20. Wave ((iii)) is a sub-wave of wave 3.