Oil Gains On The Day But Loses For The Month As JPMorgan Worries About $380 Per Barrel Prices

Meanwhile, events in Norway and India could worsen tightness: File Image/PixaBay

Ahead of the U.S. holiday weekend and with a force majeure in Libya benefitting oil prices, crude on Friday eked out gains; however, it posted a third consecutive weekly loss and ended June down 8 percent on the month.

Brent settled up $2.60 at $111.63 per barrel, and West Texas Intermediate settled up $2.67 at $108.43 per barrel; for the week, Brent lost 1.3 percent while WTI rose 0.8 percent.

Ed Moya, senior market analyst at Oanda Corp., said, "Crude prices are finishing the week on a high note as Libya's political crisis is leading to a steep drop with oil exports: we've seen this movie before and a tight oil market and force majeure at key ports should provide underlying support for oil prices."

Also, Reuters calculated that a planned strike among Norway's oil and gas workers next week could cut the country's overall petroleum output by around 8 percent or 320,000 barrels of oil equivalent per day, unless a last-minute agreement is reached.

Potentially further exacerbating a tight market is India, whose government on Friday increased levies on shipments of gasoline and diesel as part of a drive to control a worsening currency deficit.

As has been the recent norm, Friday saw mixed signals about the state of the market overall: in the previous session analysts pointed to reports of falling U.S. consumer spending as a sign that demand was waning; but on Friday came reports that demand remains robust as a record number of drivers are expected to hit the road this weekend for Independence Day travel.

Jim Ritterbusch, president of Ritterbusch and Associates, said in a note, "The ability of the complex to post a strong advance today in the face of significant U.S. dollar strength and a weak equity trade suggests some refocus on tight oil supplies."

Friday also saw a continuation of the criticism against Europe's planned oil cap against Russia for invading Ukraine, with JPMorgan Chase & Co worrying that global oil prices could reach a "stratospheric" $380 per barrel if Russia decides to enact retaliatory crude output cuts.

JPMorgan analysts wrote that Moscow could afford to slash daily crude production by 5 million barrels without excessively damaging the economy, and that a 3 million barrel cut to daily supplies would push benchmark London crude prices to $190, while 5 million could result in $380 crude.

They added, "The most obvious and likely risk with a price cap is that Russia might chose not to participate and instead retaliate by reducing exports; it is likely that the government could retaliate by cutting output as a way to inflict pain on the West.

"The tightness of the global oil market is on Russia's side."