Oil held well above US$100 a barrel after posting the biggest one-day advance since May, aided by a tightening market and a cooling in dollar gains.
West Texas Intermediate dipped after rallying more than 5 per cent on Monday. The dollar posted a third straight daily drop, making commodities priced in the currency more attractive, while a disruption along the Keystone pipeline cut shipments of some Canadian oil to US refiners.
Oil markets have seen volatile trading in recent weeks as traders navigated concerns that a looming recession would hurt demand, the fallout from a stronger dollar, and signs that underlying physical conditions remain tight. Nearby Brent futures are trading in excess of US$4.50 higher than the second month, a huge premium indicating that refiners are willing to pay up for barrels.
Despite the strength in crude, refined products prices are starting to ease. US nationwide gasoline prices fell to a two month low, according to AAA data published Tuesday. In recent days traders have been grappling with President Biden’s efforts to get Saudi Arabia to lift its oil production. “Prices rallied to start the week,” said Keshav Lohiya, founder of consultant Oilytics. “With the way oil market volatility has been over the last few weeks, even a US$4-US$5 jump can be just noise, especially with the markets being illiquid due to the summer lull.” WTI for August delivery traded 0.7 per cent lower at US$101.91 a barrel at 10:06 a.m. in London.On his visit to Saudi Arabia, President Biden urged producers from the region to boost supplies.
“The whole concept of going to Saudi Arabia to ask for extra production is sort of impractical,” Fereidun Fesharaki, chairman of industry consultant FGE, told Bloomberg TV, noting that the kingdom has already been pumping crude at close to its historical peak, with little spare capacity likely left to tap. “If there’s no buffer in the market, the prices will go haywire.”
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