Oil Rebounds On Sentiment, But Market Awash In Bearish Signs

Meanwhile, the Trans Mountain pipeline delivers strong numbers: File Image/Pixabay

Two key crude benchmarks on Monday achieved their highest gains since April on the persistent hopes of rising summer demand and worries global supplies could be reduced if the Middle East conflict spreads beyond Gaza. 

Brent settled up $1.60 at $86.60 per barrel, while West Texas Intermediate settled up $1.84 at $83.38.

Concern over the geopolitical tensions was expressed by Bob Yawger, director of energy futures at Mizuho, who stated in a note, "Hezbollah and Israel seem to be drifting closer and closer to a full scale war that runs the risk of drawing in OPEC member Iran and its Shiite allies in Iraq, Yemen and Syria."

Demand hopes were stoked in the U.S. by the AAA, which acknowledged that gasoline demand has been soft but prices at the pump could rise with a record 60 million travelers expected to hit the roads ahead of Fourth of July.

Also, JPMorgan forecasted a global oil liquids deficit of 1 million barrels per day (bpd) in the third quarter and a 1.9 million bpd drawdown in August, with Brent hitting $90 per barrel by September.

Demand discussions were capped by the advent of Hurricane Beryl, which pundits said would cause gas prices to increase if it hit Gulf Coast refineries but result in lower oil trading as unused barrels piled up.

Plus, they added that Beryl’s record-breaking force so early in the year could herald serious hurricane season to come – and possible energy infrastructure damage.

For its part, Bloomberg noted that prompt spreads also rallied further into a bullish backwardated structure, indicating tightness in the market; however, it warned that the market contained some bearish signs: “Tepid gasoline demand and weaker economics in the U.S. this summer has forced at least one refinery to cut rates, [and] while a private gauge of China’s manufacturing activity showed an expansion in June to the highest in three years, it diverged from official data showing a contraction, clouding the demand outlook.”

In other oil news on Monday, media reported that the Trans Mountain pipeline delivered enough crude oil to load 20 tankers from Canada’s Pacific Coast in the first full month of operations of the expanded link; this was only slightly below the company’s expectations.

The new pipeline has tripled the capacity of the original pipeline to 890,000 bpd)from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia; the U.S. West Coast and Asian markets are said to be the two top destinations for the crude.