Oil is up 1% as supplies shrink, and demand is seen higher

  • The International Energy Agency warns of a looming oil shortage in the second half of the year
  • US gasoline futures rose to a one-month high
  • Declining oil production in the Kurdistan region of Iraq
  • Biden meets US congressional leaders on the debt ceiling

SINGAPORE (Reuters) – Oil prices rose 1% on Monday as US gasoline futures rose on expectations of higher oil demand in the second half of the year, while supplies from Canada and OPEC+ have slumped in recent weeks.

However, oil prices remained in check due to the strength of the dollar and the market waiting for news of the US debt ceiling talks.

Brent crude futures for July delivery rose 41 cents, or 0.5%, to settle at $75.99 a barrel.

US West Texas Intermediate crude for June delivery rose 44 cents, or 0.6%, to settle at $71.99 a barrel, while the more active July contract, which is now the new futures month, rose 0.5% to settle at $72.05.

US gasoline futures were the biggest driver of prices, rising 2.8% to a one-month high of $2.6489 a gallon.

“Gasoline drove oil prices higher today … with the Memorial Day holiday approaching,” analysts at energy consulting firm Ritterbusch & Associates said in a note.

In the United States, the Memorial Day holiday marks the start of the peak summer driving season.

Meanwhile, the International Energy Agency (IEA) has warned of a looming oil shortage in the second half of the year as demand is expected to exceed supply by about 2 million barrels per day, the Paris-based agency said in its latest publication. monthly report.

A senior executive at Vitol said Asia will lead oil demand growth by about 2 million barrels per day in the second half of the year, an increase that could lead to supply shortages and push up prices.

Last week, both oil benchmarks rose about 2%, their first weekly rise in five after wildfires shut down large amounts of crude supplies in Alberta, Canada.

The impact of voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+, is beginning to be felt after they took effect this month.

Oil production in the Kurdistan region of Iraq continued to decline, with few indications of the resumption of exports to the Turkish port of Ceyhan after a hiatus of nearly two months.

Total exports of crude oil and oil products from OPEC+ fell by 1.7 million barrels per day by May 16, JPMorgan said, adding that Russian oil exports will likely decline by late May.

The Group of Seven major industrialized countries pledged on Saturday at their annual meeting of leaders to strengthen efforts to confront Russia’s evasion of capping prices for its oil and fuel exports.

But the G7 meeting angered China, the world’s largest oil importer. China’s state-backed Global Times newspaper called the G7 “an anti-China workshop”.

The G7 singled out China on issues including Taiwan, nuclear weapons, economic coercion and human rights abuses.

“Crude oil prices are in no man’s land as energy traders look to see what happens with both the debt ceiling talks and tensions between the US and China,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

US President Joe Biden and Republican House Speaker Kevin McCarthy will meet on Monday to discuss raising the federal government’s debt ceiling, just 10 days before the US faces an unprecedented default.

The US dollar rose against a basket of other currencies, holding just below a two-month high, as investors waited for fresh signals on whether the Federal Reserve was likely to continue raising interest rates and watched news on the US debt ceiling.

A strong dollar can affect oil demand by making fuel more expensive for holders of other currencies.

Minneapolis Fed President Neel Kashkari said it’s a “close call” on whether he will vote to raise interest rates or stop the central bank’s tightening cycle when it meets next month.

Higher interest rates boost borrowing costs, which can slow the economy and reduce demand for oil.

(Reporting by Florence Tan) Editing by Himani Sarkar

Our Standards: The Thomson Reuters Trust Principles.

Scott DiSavino

Thomson Reuters

Covers the energy and natural gas markets in North America.

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