Oil prices fall on tight global supply worries
After rising in the previous three sessions, oil prices fell on Wednesday, but losses were limited due to the belief that global supply tightness will continue as there is limited room for major producers such as Saudi Arabia to boost production.
US West Texas Intermediate WTI crude CLc 1 futures fell 44 cents, or 0.4%, to $111.32 a barrel at 0150 GMT, giving up earlier gains.
The August price of crude LCOc 1 futures dropped by 61 cents, or 0.5%, to $117.37 a barrel, reversing an earlier gain. The contract for August will expire on Thursday, and the more active contract for September will be at $113.14, down 66 cents, or 0.6%.
On Tuesday, both Brent and WTI rose more than 2% as concerns over tight global supply outweighed fears that demand may slow in a future recession. The Group of Seven economic powers agreed to look at ways to cap the price of Russian oil to reduce market sentiment.
Hiroyuki Kikukawa, general manager of research at Nissan Securities said that investors made position adjustments, but they also remained bullish on expectations that Saudi Arabia and the United Arab Emirates would not be able to raise output significantly to meet recovering demand, due to a pick-up in jet fuels.
He said that oil prices will likely stay above $110 a barrel, because there are fears of possible supply disruptions due to hurricanes as the United States enters the summer.
Saudi Arabia and the UAE have been seen as the only two members of the Organization of the Petroleum Exporting Countries OPEC with spare capacity to make up for lost Russian supply and weak output from other member nations.
On Monday, the UAE Energy Minister Suhail al-Mazrouei said that the emirate was producing near the maximum capacity of its quota of 3.168 million barrels per day bpd and that Saudi Arabia could increase its output by just 150,000 barrels per day, which is below its nameplate spare capacity of around 2 million barrels per day, according to French President Emmanuel Macron.
The number of active rigs in the group posted a rebound and new completed wells declined, as prices and demand recovered from the worst of the COVID pandemic.
Political unrest in Libya and Ecuador could cause tighter supply, according to analysts.
Inventory data in the US gave some sense of an improvement in fuel supply. Market sources said American Petroleum Institute figures showed that gasoline stocks for the week ending June 24 rose by 2.9 million barrels and distillate fuel supplies increased by 2.6 million barrels. The crude inventories fell by 3.8 million barrels.
The US crude inventories are forecast to have fallen for the last two weeks, according to a poll by Reuters. The government's weekly petroleum status report was delayed last week due to a hardware issue. The data for both weeks will be released on Wednesday.