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Why isn’t the Increase in US Supply Keeping Oil Prices Down?

by Carl Steward
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OilWhy isn’t the Increase in U.S. Supply Keeping Oil Prices Down?

On the relaxation of Chinese COVID-19-related lockdowns and a prospective strike by Norwegian oil workers, oil prices increased on Wednesday; despite an anticipated rise in U.S. oil supplies.

At 0927 GMT, Brent oil futures were up $1.01, or 0.8 percent, at $121.58 a barrel. U.S. West Texas Intermediate crude price was $120.62 a barrel, up to $1.21 or 1%. “Oil prices are higher, despite the API data suggesting buildup for crude and oil products,” UBS analyst Giovanni Staunovo said.

Should We Expect Further Price Rise?

According to market sources, American Petroleum Institute numbers released on Tuesday revealed that oil stockpiles in the United States increased by 1.8 million barrels for the week ending June 3. Gasoline and distillate inventories increased by 1.8 million and 3.4 million barrels, respectively. On Wednesday at 1030 a.m. EDT (1430 GMT), the U.S. Energy Information Administration (EIA) will release stock levels from the previous week. The World Bank lowered its global growth prediction for 2022 by about a third on Tuesday; it warned that Russia’s invasion of Ukraine had exacerbated the COVID-19 pandemic’s effects and that many nations were now in recession. Meanwhile, global crude and oil product supplies remain tight; pushing Asian refiners’ diesel margins to new highs as Western sanctions stifle shipments from Russia, the world’s largest producer.

According to the CEO of global commodities trader Trafigura, oil prices might soon exceed $150 a barrel and move higher this year, with demand destruction probable by the end of the year. To satisfy increased demand from the epidemic recovery and replace the lost Russian supply, most refineries worldwide are now near capacity. According to JP Morgan analysts, Russia has restricted oil product exports by 500,000 to 700,000 barrels per day since marketing gasoline is more difficult than marketing crude. “The lack of clean goods will only become worse when demand for transport fuels rises throughout the northern hemisphere summer,” they said in a note unless additional Middle East capacity comes up faster than expected or China decides to reduce its product export limitations.

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