Oil futures: Prices rebound from lows, market shrugs off demand concerns

4 Jul 2022

Quantum Commodity Intelligence - Crude oil futures Monday were climbing higher, rebounding from earlier losses as demand destruction and crude production shortfalls continue to send mixed signals to the market. 

Front-month September ICE Brent futures were trading at $113.50/b (1750 GMT), compared to the intraday low of $110.40/b and Friday's settle of $111.63/b.

At the same time, August NYMEX WTI was trading $110.52/b, versus Friday's settle of $108.43/b.

Supply/demand fundamentals on crude were seen remaining tight, with ongoing production problems from OPEC members Libya and Ecuador.

The first survey of the month tracking June output, published by Reuters, found OPEC producers continue to miss targets, with output down 100,000 bpd from May's revised total, whereas OPEC had planned to boost June output by about 275,000 bpd.

The 10 core OPEC members with quotas are pumping far less than called for under the OPEC+ deal, found the survey, with OPEC compliance at 253% in June versus 178% in May.

However, recessionary fears and demand destruction continue to weigh on markets. 

Demand

"Global retail prices remain at record dislocations versus crude prices, resulting in consternation for consumers and their governments, who continue to seek to intervene in oil markets - often counter-productively," said Goldman Sachs in its latest investor report published late Sunday.

Mike Muller, head of Asia at Vitol, told Sunday's Gulf Intelligence energy markets podcast that consumers are starting to feel the pinch from high retail prices, with increasing signs of behavioural adjustments.

"There's very clear evidence out there of economic stress being caused by the high prices, what some people refer to as demand destruction," said Muller, adding, "it's not just oil, but also liquefied natural gas."

Global products weakness was triggered last week after EIA data showed a 13-million-barrel build in US oil product stocks over the previous two weeks to 765 million, its highest since late January, although Asian and European distillate cracks staged a recovery Friday after India announced a steep tax on diesel exports.

Broader economic concerns also continue to drag on markets, in part caused by high energy prices and a shortfall in Russian gas damaging Europe's industrial output. 

Underlying volumes in the North Sea Dated Brent benchmark are set to fall during August as North Sea maintenance continues over the summer months, further underpinning the Dated Brent market. 

Supply from the five grades that underpin Dated Brent – Brent/Ninian, Oseberg, Forties, Ekofisk, and Troll – will average around 735,000 bpd in August versus the originally scheduled program of 775,000 bpd in July, although up from below 600,000 bpd in June.

Meanwhile, the Intercontinental Exchange, which hosts the ICE Brent futures contract, plans to include WTI Midland in calculations for its Brent Index from June 2023 and increase the cargo size to 700,000 barrels.