FIS: Crude Oil Market Overview: Mixed month for both Brent and WTI

Crude oil prices had a mixed month in July, ranging between $95-115/bbl for both Brent and WTI prices.

Brent and WTI both ended July with a second straight monthly loss for the first time since 2020, as soaring inflation and higher interest rates raised fears of a recession that could erode fuel demand. Brent crude has fallen by over 10% since the beginning of July, and by just under 1% in the past week. At the same time, Reuters reported that investors braced for this week's meeting between OPEC and its producer allies to set output targets.

The Organization of the Petroleum Exporting Countries (OPEC) pumped 28.98 million barrels per day (bpd) of crude last month. This was up by 310,000 bpd from June's revised total. The survey found that the most significant increase in production, 150,000 bpd, came from the top exporter Saudi Arabia, although the Kingdom continued to pump less than its target. Also weighing on prices was a rise in Libyan oil production, which hit 1.2 million bpd, up from 800,000 bpd on July 22, after lifting a blockade on several oil facilities. However, despite repetitive calls from G7 nations to pump more oil while they seek to avoid Russian products, OPEC+ has failed to increase its production output. In June, OPEC+ production was 2.84 million b/d lower than its output target for the month, according to Argus Media.

How can OPEC+ manage this continued failure to reach its output target? Last week we mentioned that Saudi Arabia plans to increase its oil exports by reducing its reliance on oil for domestic consumption. It was estimated that 1 million barrels per day (bpd) could be released, increasing its reliance on renewable and natural gas supplies by 2030. As an OPEC founder and leader in oil production, this could be a clever move that other OPEC members could follow. The Organization of the Petroleum Exporting Countries and allies, including Russia, known as OPEC+, will meet on Wednesday. Two of eight sources have said a modest hike would be discussed, while the rest said a boost was unlikely.

Russian supply dropped last month as India and China reduced their crude oil imports. Asia’s biggest refiner, Sinopec of China, cut its purchases of Russian crude this month as it is unwilling to pay the higher prices that customers in India were paying. This comes after China had become the biggest importer of Russian crude oil over the past few months.

India’s crude oil imports slipped in June, compared to April and May, to 19.21 million tonnes from 21.47 and 19.6 million tonnes, respectively. According to Bloomberg, Russia’s oil exports have declined for a fifth consecutive week. Oil cargo shipments are down by 480,000 b/d, or nearly 18%, since mid-June. The drop is likely due to fewer oil exports to India and China. Russian oil shipments to both countries have fallen by almost 30% since a recent peak.

European governments have eased back on sanctions on Russian oil trade as they have delayed plans to ban marine insurers from granting policies to Russian ships. This is on the back of mounting inflation and energy risks.

Europe continues to face an unprecedented energy crisis that pushes the economy closer to a recession and poses serious questions about the continent’s climate change ambitions.

A few days ago, Russian energy giant Gazprom said it suspended gas supplies to Latvia. It became the latest EU country to experience such action amid tensions over Ukraine. Gazprom accused Latvia of violating conditions of purchase, but gave no details of the alleged violation. Since Russia's February invasion of Ukraine and tightening sanctions, Gazprom has suspended gas deliveries to Bulgaria, Finland, Poland, Denmark and the Netherlands over non-payment in rubles. Russia has also halted gas sales to Shell Energy Europe in Germany.

The previous week has also seen supplies via Nord Stream 1 reduced to 20% from 40%, with Gazprom citing maintenance issues.

BBC reported that the EU is now striving to boost gas imports from elsewhere, including liquefied natural gas (LNG) from Norway, Qatar and the US. The European Commission has asked EU nations to have a minimum storage target of 80% by November. In June, gas filling levels were just over 56%, according to the same institution.

Written by Mopani Mkandawire, Edited by Chris Hudson (https://freightinvestorservices.com/fis-live/).