Brent crude has climbed above $80 a barrel for the first time since early May, a sign that supply is gradually tightening and demand growing. The oil prices gains came despite data showing United States (U.S.) crude inventories jumped by nearly six million barrels last week with traders focusing on surging domestic demand during the summer driving season.
The latest oil price rally comes after Saudi Arabia, for the second month, extended its voluntary 1M bbl/day oil production cut for another month, this time till August. The reduction will take the country’s production to ~9M bbl/day, the lowest level in several years.
The Kingdom has been single-handedly sacrificing sales volume to goose weak oil prices, but has so far reaped little reward, thanks to increased supply by non-Organisation of Petroleum Exporting Countries (OPEC) producers, including the U.S.
The Energy Information Administration (EIA) reported that U.S. crude oil production is on track to set a record this year, up nine per cent Y/Y through April. EIA has forecast total U.S. output will hit 12.61M bbl/day in the year, above the previous record of 12.32M bbl/day set in 2019 and easily beating last year’s 11.89M bbl/day.
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Although OPEC and its allies have announced cuts amounting to six per cent of 2022’s production, Rystad Energy estimates output in countries outside OPEC is making up for about two-thirds of those reductions, frustrating OPEC’s efforts to goose prices.
Meanwhile, heavy trading in Dubai oil has lifted its premium to WTI crude to its highest since late March, a development that could make U.S. crude even more competitive in Asia. More traders have turned to Dubai after Persian Gulf producers such as Saudi Arabia hiked prices and shipping rates also climbed.
Bloomberg has reported that Dubai swaps were trading at a premium of $3.65 a barrel above U.S. benchmark West Texas Intermediate futures in Singapore, with the spread usually smaller than $3. Increased trading of partials–smaller lots that are accumulated and converted into physical cargoes–is also giving a boost to Dubai oil prices. Asian exports of U.S. crude have been climbing with buyers returning after months of scooping up cheap Russian barrels.