But all signs indicate that "turbulence" lies ahead: File Image/Pixabay
With signs that the powerhouse U.S. economy may not be as resilient as thought, oil on Thursday posted its first monthly drop this year, of 7.8 percent, as the CEO of an energy giant warned that a turbulent period lies ahead for the commodity.
After a report was released showing that U.S. consumer spending fell in May for the first time this year and prior months were revised lower, West Texas Intermediate fell by $4.02 to settle at $105.76; this contributed to the 7.8 percent monthly dip.
Brent for August settlement, which expired Thursday, fell $1.45 to settle at $114.81 per barrel.
Ed Morse, global head of commodity research, Citigroup
Recession risks continue to grow
Ed Morse, global head of commodity research at Citigroup, told media that demand has stalled since earlier this year, "And it's stalling out in the rest of the world because of high prices"; he went on to note that "recession risks continue to grow."
And yet, as filtered through media, the market situation is conflicted: on one hand demand is stalling but (depending on who is assessing the situation) remains red hot, as gasoline drawdowns in the U.S. testify; also, Ben van Beurden, CEO of Shell, warned that the world is heading for a "turbulent period" as tightening supplies exacerbate a global energy crunch.
Van Beurden noted that "I think it is probably fair to say there is a little bit of a fear factor in the oil price at the moment but by and large, it is also true that there is limited spare capacity."
Meanwhile, following the failure of emergency reserve sales intended to lower prices at the pump, U.S. president Joe Biden said when he journeys to Saudi Arabia next week he'll ask American companies operating in the Persian Gulf to boost oil production, in a bid to reduce record-high gasoline prices.
However, he added that the main reason for his trip is to establish peace in the region.
Contributing to Thursday's doldrums was the Organization of the Petroleum Exporting Countries (OPEC), which once again ignored global calls to boost output and agreed to increase monthly overall production for the month of August to a mere 648,000 barrels per day (bpd).
Neil Atkinson, independent oil analyst, told CNBC, "I have believed for some time that the estimates for spare capacity held by the likes of Saudi Arabia and the United Arab Emirates have actually been inflated and when push comes to shove they can't put as much into the market very quickly as analysts previously thought.
"It could well be that UAE and Saudi might have 1.5 million barrels per day or so between them at a push, but the problem we have got of course is there is no transparency."
Also on Thursday, Russia president Vladimir Putin lent credence to the concerns of critics of the proposed cap on Russian oil, by stating that such a cap if imposed could push prices higher.
Critics earlier pointed out that Putin, having already cut back substantially on gas flowing to Germany and through Ukraine, could simply enact a complete cut-off of supplies, thus prompting rationing in the short term.