Oil: Another Week in Red Despite No Extra Barrels From Biden’s Saudi Visit

© Reuters.

By Barani Krishnan

AiVIF.com -- Oil was headed to another week in the red as heavy losses induced by a strong dollar prevailed over optimism that President Joe Biden’s Saudi Arabia visit will not result in immediate additional barrels on the market.

Crude prices also recovered from the week’s lows after assurances by key Federal Reserve officials that the central bank might not be ready yet to impose a record 100-basis point rate hike for July despite inflation stubbornly remaining at four-decade highs. Raphael Bostic and James Bullard, Fed chiefs for Atlanta and St. Louis, respectively, suggested that a 75-bps hike was the preferred increase for July.

New York-traded West Texas Intermediate, or WTI, crude settled up $1.81, or 1.9%, at $97.59 per barrel. For the week, however, WTI was down 6.9% after plumbing a near five-month low of $90.58 on Thursday. The U.S. crude benchmark has also lost 8.1% since the start of July.

London-traded Brent crude settled up $2.19, or 2.2%, at $101.16 a barrel. The global crude benchmark fell to $95.42 in the previous session, marking a low since late February. For the week, Brent was down 5.5% while for July it lost 7.4%.

Brent has fallen for five straight weeks now, losing a cumulative 17%. WTI has been in the negative in four of those five weeks, sliding by a net 19%.

“Oil prices are edging higher again after falling around 20% over the last month in response to increasing recession fears,” noted Craig Erlam, analyst at online trading platform OANDA.

“The soothing words of Bullard and Waller reassured everyone that 75 basis points remains the base case” for rate hikes, Erlam added. “Brent has moved back above $100 a barrel on those comforting words but promises to remain choppy amid a tight market and ongoing recession concerns.”

Reuters, meanwhile, cited a U.S. official as saying that an immediate boost in Saudi oil output was not expected despite Biden's visit to the Arab region to meet with Riyadh’s Crown Prince Mohammed bin Salman and other OPEC officials there.

The U.S. official said at the best, Washington could hope for higher OPEC production from August onward.

Even before Biden’s trip, there had been questions as to how much more OPEC would be able to put out given the incessant media narrative that the cartel had production constraints due to underinvestment in the oil fields of its member countries during the market crash of 2020 brought on by Covid-19. Oil bears, however, dispute OPEC’s account as the cartel always seemed nimble in overproducing during past market crises.

“Part of the support (today) is that everybody and their brother who digs down into the Saudi situation see that they don't have a lot of capacity left," John Kilduff, partner at New York energy hedge fund Again Capital, was quoted saying.

Looking to the week ahead, analysts said U.S. crude prices were at an inflection point of either breaking out to $106 and beyond or falling back to set a new multi-month low of $83.