Oil prices ended a volatile week and experienced the first weekly drop in four weeks. The Brent crude price was down to $66.44 per barrel, while the West Texas Intermediate (WTI) dropped to $63.58 per barrel.
The bullish developments of higher US gasoline prices, the weaker US dollar and the drop in coronavirus disease (COVID-19) cases in India were all not able to stop prices dropping at the close of the week.
The news about progress in talks over Tehran’s nuclear program, which may result in sanctions being lifted and more oil supplies coming on to the market, should not push down oil prices as there is a feeling that the oil market might already be undersupplied.
The market might be undersupplied because of signs of rising global demand ahead of the traditionally high demand for gasoline during the summer months and the fact that OPEC+ is still withholding huge supplies. The crude physical oil market has witnessed strong buying ahead of the summer.
US demand is expected to keep rising as driving activity hits a nine-month high. That was reflected in the strong gasoline market, which has seen prices top $3 a gallon for the first time since 2014.
The Energy Information Administration (EIA) expects that US gasoline consumption will average almost 9 million barrels per day (bpd) this summer, which is 1.2 million bpd more than last summer but almost 0.6 million bpd less than the summer of 2019.
Another oil demand uptick from China’s refineries, returning from a three months’ maintenance season, is reflected in lower Chinese import volumes during most of the second quarter, but the physical oil market has started to tighten up more than expected.
Baker Hughes has reported that the US drilling rig count has continued to climb during the past 25 weeks, but the EIA reported US crude oil production at 10.9 million bpd in March and almost 11.0 million bpd in April. This is still lower than the all-time peak production of 12.8 million bpd in January 2020. Hence, the question remains, are shale oil producers running out of sweet spots and suffering from the high barrel cost?
The latest figures from the Commodity Futures Trading Commission on May 18 showed that long positions on crude oil futures on the New York Mercantile Exchange numbered 625,058 contracts, down by 27,801 contracts from the previous week (1,000 barrels for each contract).
• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalfaeq