A Sliver of Hope for Oil Prices
In a tug-of-war between political instability in Russia and lingering worries about global demand growth, oil prices for two primary benchmarks experienced a slight increase on Monday. Following the rebels belonging to the Wagner Group’s decision to cease their rapid approach to Moscow and return to their bases, Brent experienced a 0.5% bump, settling at $74.18 per barrel. Concurrently, West Texas Intermediate went up by 0.3%, settling at $69.37 per barrel.
U.S. Secretary of State Antony Blinken remarked that the situation in Russia was far from over, suggesting that its resolution could take months. The energy market might face considerable implications in light of this political unrest.
Saudi Arabia’s Supply Cut and U.S. Rig Count Drops
According to Phil Flynn, senior market analyst at Price Futures Group Inc., political instability in Russia might worsen the supply shortages as Saudi Arabia remains true to their promise of reducing output from July. Furthermore, it might put an end to strategic reserve releases from the United States. Flynn cautions against complacency in the market, which has relied on an anticipated drop in demand to counteract a significant decrease in supply.
Interestingly, Flynn’s observations coincide with a Baker Hughes report indicating that the number of oil and natural gas rigs operated by U.S. energy companies dropped for an eighth consecutive week – a first since July 2020. The rig count experienced a decline of 5, bringing the total to 682 in the week ending June 23, which is the lowest count since April 2022. This places the overall rig count at 71 rigs (or 9%) lower than in the same period last year.
Highest Weekly Processing Rate Since April
The result is an increase of nearly 115,000 barrels per day compared to the week prior, demonstrating the highest weekly processing rate since April 6-12. Meanwhile, Russia is also weighing the possibility of reducing subsidies to their refiners by as much as 50% as early as September. This move aims to limit spending amidst Russia’s ongoing conflict with Ukraine.
In summary, the fluctuating oil prices are facing a precarious situation as political unrest in Russia and the struggle over global demand growth take center stage. With Saudi Arabia cutting its supply and a drop in the U.S. rig count, the Energy market must carefully maneuver these challenging conditions to maintain stability.
