Crude Oil Higher; Biden's Saudi Arabia Trip Fails to Boost Output

© Reuters.

By Peter Nurse

AiVIF.com -- Oil prices rose Friday, boosted by the failure of President Joe Biden’s trip to Saudi Arabia to result in any promises to boost supply, although the prospect of widespread COVID-19 lockdowns in China could limit demand.

By 09:30 AM ET (1330 GMT), U.S. crude futures traded 4.5% higher at $98.86 a barrel, while the Brent contract rose 4.4% to $105.64.

U.S. Gasoline RBOB Futures were up 3.7% at $3.3325 a gallon.

Biden's trip to Saudi Arabia failed to result in any pledges from the top OPEC producer to boost oil supply, as was generally expected after officials had flagged that this would be the case in advance.

That said, prices still climbed after comments from Saudi Arabia’s foreign minister, Prince Faisal bin Farhan Al Saud, who said a U.S.-Arab summit on Saturday hadn't discussed oil and that the OPEC+ forum was still the vehicle through which the kingdom carried out its oil output policy.

“The next OPEC+ meeting is on 3 August,” said analysts at ING, in a note. “However, with the exception of Saudi Arabia and the UAE, there is little in the way of spare capacity amongst producers.”

Potentially impacting supply this week is the resumption of Russian gas flows to Europe via the Nord Stream 1 pipeline, which is scheduled to end maintenance on Thursday.

Fears are growing that Russia will choose to extend the shutdown as a political play because of the war in Ukraine, which could see Brent crude finding support as Germany, in particular, seeks additional sources of power.

Also helping crude prices Monday has been the U.S. dollar’s retreat from multi-year highs, as a weaker greenback makes dollar-denominated commodities more affordable for holders of other currencies.

Still, both benchmark contracts last week posted their biggest weekly drops in about a month on fears aggressive monetary tightening by central banks around the globe, and the U.S. Federal Reserve, in particular, will result in a sharp slowdown of economic growth, hitting oil demand.

Additionally, China reported 510 cases for Sunday after infections jumped to 580 on Saturday, the highest since May 23. This has resulted in Shanghai introducing mass-testing in a number of districts, increasing fears that the world’s largest importer of crude will again be forced into widespread economically-damaging lockdowns.

Data released last week showed China’s daily crude oil imports in June sank to their lowest since July 2018.

The latest positioning data, released late last week, showed the net long in ICE Brent fell by 3,374 lots, resulting in a net long of 139,628 lots.

“This is the smallest net long held since November 2020,” ING said. “The decline seen in the net long since mid-June is a reflection of concerns over the demand outlook, with growing fears of a recession.”