Oil Ekes Out Gains As Bullish Evidence Trumps Economic Concerns

Meanwhile, Libya and Norway could trigger further market tightness: File Image/Pixabay

Oil trading on Tuesday resumed its upward trajectory but maintained an emerging trend of lower numbers, as bullish fundamentals again trumped concern over demand destruction brought about by skyrocketing inflation.

After Morgan Stanley forecast oil hitting $150 per barrel in the third quarter and Goldman Sachs Group Inc. said crude needs to rally further to achieve the demand destruction required for market re-balancing, West Texas Intermediate gained 91 cents to settle at $119.41 per barrel; Brent rose $1.06 to $120.57 per barrel.

Morgan Stanley elaborated in a report that the oil market will likely be in a deficit of 500,000 barrels per day (bpd) in the second half of the year, and Goldman wrote in a note that the market remains in a structural deficit and was even tighter than expected in April (it believes Brent will hit $140 per barrel in the third quarter).

But not everyone was convinced that the market's current structure was sustainable: Rebecca Babin, senior energy trader at CIBC Private Wealth Management, warned, "I am concerned U.S. demand will not live up to expectations and we will see demand destruction here."

Dennis Kissler, senior vice president of trading at BOK Financial, also expressed concerns: "The true fundamentals in crude, gasoline and diesel remain bullish, although prices have risen a bit too far too fast."

It's not a stretch to argue that the only beneficiaries of record high oil prices and high demand are energy producers, governments, and related services; otherwise it is causing widespread suffering: Bloomberg on Tuesday reported that "Sri Lanka, Laos, Nigeria and Argentina are among emerging economies in Asia, Africa and Latin America that have seen long queues at some filling stations in the past weeks because of fuel shortages."

Virendra Chauhan, Singapore-based head of Asia Pacific for consultancy Energy Aspects, added, "We could see a lot of unrest as emerging economies are more sensitive to fuel prices; while historically most of these have relied on fuel subsidies to appease the populace, because of a large and burgeoning import burden, it may be difficult to maintain these subsidies."

In other oil related news on Tuesday, after weeks of conflicting opinions about the efficacy of the Western world's sanctions against Russia, the Energy Information Administration stated that the European Union's ban on seaborne imports of Russian petroleum will result in an 18 percent drop in the country's fuel output by the end of next year.

An EIA report noted that production of Russian liquid fuels is set to reach 9.3 million bpd in the fourth quarter of 2023 from 11.3 million in the first quarter of this year,.

Also on Tuesday, supply concerns were stoked with news that the Sharara oilfield in Libya was halted again; and in Norway, more than one in 10 offshore oil and gas workers plan strike action from Sunday if state-brokered wage mediation fails.