More Gains For Crude As China's Covid Restriction Relaxation Adds To Red Hot Demand

Meanwhile, more criticism is levelled against the Russia oil gap scheme: File Image/Pixabay

Global inventory tightness clashing with red-hot global demand was credited yet again for crude prices extending their gains on Tuesday, with West Texas Intermediate rising to nearly $112 per barrel.

Brent climbed $2.89, or 2.5 percent, to settle at $117.58 per barrel, while WTI settled up $2.19, or 2 percent, to $111.76 per barrel.

The session was also influenced by G-7 leaders saying they want ministers to urgently examine how prices of Russian oil and gas can be curbed; strong demand for oil from the former Soviet Union is prompting higher prices for the flagship Urals grade, which averaged $87.49 per barrel between mid-May and mid-June, a near 20 percent increase compared to the month earlier.

John Kilduff, founding partner at Again Capital, pointed out that the market is especially strong now that China is relaxing its Covid restrictions and starting its independent refiners: "We're going to have another chunk of demand for crude oil," he said, adding that "We're in the crunch period, it's hard to see any meaningful price relief for crude."

Ed Moya, senior market analyst at Oanda, said, "European demand will remain robust, especially as natural gas supplies run out, while the North American demand for crude is weakening."

Not helping the matter any is the Organization of the Petroleum Exporting Countries: according to its Joint Technical Committee, the cartel has pumped a collective 562 million barrels less than levels stipulated in its output agreement ratified in May of 2020, and it has been struggling for months to deliver pledged volumes as some members face diminished investment and operational issues.

Meanwhile, criticism of the G-7's bid to cap Russian oil continued on Tuesday, with Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, telling media that the G-7 nations need to brace for a complete shutdown of Russian gas pipelines in the near term, and it could severely harm Europe's economy.

He said, "Russia already has cut back substantially on gas flowing to Germany and through Ukraine, so shutting down the pipelines is not inconceivable…..the total cut-off of Russian supplies would prompt gas rationing at least for the short term."

However, Schott also noted that "The action taken to stop buying Russian gold is one small step in the right direction" because it would help starve the Russian economy of the things that could be sold abroad.