Oil Dips On India Buying More Russian Crude, But Markets Remain Tight

Meanwhile, high energy prices are causing havoc in Thailand: File Image/Pixabay

More evidence that puts to question the efficacy of oil sanctions against Russia for its invasion of Ukraine caused crude prices on Monday to dip, albeit minimally and with expectations that the dip will be fleeting.

West Texas Intermediate fell 37 cents to settle at $118.50 per barrel, and Brent dropped 21 cents to settle at $119.51 per barrel after it was learned that refiners in India are working on finalizing new six-month supply contracts for deeply-discounted supplies from Rosneft, which if ratified would be in addition to its existing purchases from Russia and would double total imports.

Minimizing losses on Monday was news that Saudi Aramco raised its key Arab Light crude grade for Asian customers by $2.10 per barrel from June to $6.50, against expectations of a $1.50 rise: this was perceived as confidence in demand from Asia as China slowly relaxes its stranglehold Covid lockdowns that have damaged its economy.

Indeed, Bloomberg on Monday reported that at least two Asian refiners who asked not to be identified are planning to ask for more July-loading volumes, despite the price rises; also, offers for West Texas Intermediate Midland crude for September arrival to Asia are about $4 per barrel higher than comparable quality Murban from Abu Dhabi, according to traders.

Still, the consequences of high prices coupled with high demand continue to be troubling to world economies, case in point: official data released Monday showed that Thailand's retail inflation quickened in May to its highest in nearly 14 years, with consumer prices rising 7.1 percent from a year earlier and accelerating from 4.7 percent a month ago, driven mostly by energy and food items.

Ronnarong Phoolpipat, Thailand's trade policy and strategy office director-general, remarked, "There remains immense pressure on inflation as fuel and energy costs continue to climb further; we just wish that the OPEC's oil production increase will start to bring the prices of crude down."

Ed Moya, senior market analyst at Oanda, issued a warning about the state of the oil market: "Energy traders are confident this oil market will remain tight given the short-term supply outlooks from both OPEC+ and the US, but it has been a steady climb higher.

"Exhaustion could be settling in."

Meanwhile, Citibank and Barclays on Monday raised their price forecasts for 2022 and 2023 on the expectation that Russian output and exports will fall by around 1 million to 1.5 million barrels per day (bpd) by end-2022, and because additional supply from Iran will likely be heavily delayed due to a lack of a nuclear deal with the U.S.

Citi now forecasts sanctions relief beginning in the first quarter of next year, at first adding 0.5 million bpd, then 1.3 million bpd over the second half: "We continue to see a downward trend to prices after a spiky near-term period, on progressively loosening supply-demand balances."