Oil Up On Conviction A Tight Market Could Last For Years

Lack of investment is cited as a main cause for current market woes: File Image/Pixabay.

With confidence that a tight oil market and high demand will continue even as inflation continues to climb, oil prices on Tuesday enjoyed another round of gains – and last week’s massive sell-off of the commodity has been dismissed as overplayed by analysts.

West Texas Intermediate for August delivery settled up $1.53 to $109.52 per barrel, while Brent settled up 52 cents to $114.65 per barrel after Vitol Group said demand in China is recovering in a market that’s struggling to increase supplies – a scenario in which prices are unlikely to drop.

Vitol CEO Russell Hardy added that "Its tough to see markets really giving up much ground until we see some abatement in demand; we are still really not back to 2019 demand levels for gasoline and jet fuel ... all in all that's fairly supportive of prices."

Hardy went on to speculate that more Russian crude oil and products will head to Asia markets in 2023, while Europe will turn more to the Middle East to buy diesel.

Also, Exxon Mobil Corp. said on Tuesday that global oil markets may remain tight for another three to five years, due mainly to a lack of investment that began prior to the pandemic; Darren Woods, CEO of the energy giant, said in Qatar that it’ll take time for companies such as his to catch up on the required spending needed to ensure sufficient supply, and “How that manifests itself in price will obviously be a big function of demand, which is difficult to predict."

Given these fundamentals, Dennis Kissler, senior vice president of trading at BOK Financial, said that while traders are nervous about the prospect of a U.S. recession within months, “It seems for now the latest sell off on crude may have been overplayed as near-term demand remains strong.”

Meanwhile, much of Tuesday’s analytical focus was on Washington’s proposal of an oil price cap on Russian crude, and talks continued on how the U.S. and allies could limit on the price of Russian oil shipments and thus dent revenues feeding the former Soviet Union’s war on Ukraine.

For his part, commodities trader Pierre Andurand said it was “hard to think of a downside” to the proposal, but in a Twitter post he noted that Vladimir Putin “might decide to cut production to make international prices go up and create pain for the global economy.”