Oil Little Changed on Week, After U.S. Fuel Prices Hit Record Highs

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By Barani Krishnan — Oil prices were little changed heading into Friday’s finish and the weekend as bulls and bears squared off in their quest to best the market’s recent resistance and support, despite fuel at U.S. pumps itself hitting record highs.

Two days of impressive gains that took the U.S. crude’s West Texas Intermediate grade to an eight-week high and briefly above its U.K. rival Brent for the first time since 2020 were offset by three days of equally surprising setback, leaving both benchmarks with insignificant progress from the prior week.

With about an hour to Friday’s settlement, New York-traded was up 36 cents, or 0.3%, to $110.25 a barrel. 

The U.S. crude benchmark was down 0.1% on the week, after hitting 8-week highs of $115.56 on Tuesday.

London-traded was up 21 cents, or 0.2%, to $112.35 a barrel.  The global crude benchmark was up 0.6% on the week, hitting a seven-week high of $115.69 on Tuesday.

“It’s been another volatile week of trade in oil but Brent and WTI are set to end it roughly where they started,” said Craig Erlam, analyst at online trading platform OANDA. “Price action remains very choppy. There are just so many forces at play at the minute and the increased economic gloom this week and Chinese reopening progress has only added to that.”

Notwithstanding that, the trajectory in crude remained towards the upside, said Erlam.

“Unless the economy substantially falters immediately, there isn’t much of a bearish case for crude currently — not in any significant way, anyway,” he added.

Oil rallied twice during the week on the back of hopes that the planned easing of Covid restrictions in Shanghai could improve fuel demand in China, the world’s largest importer of oil. 

Bullish consumption and stockpiles data on U.S. oil released by the government on Wednesday also helped the market find support.

Offsetting that was continued uncertainty on whether Europe would reach consensus to ban Russian oil to validate the EU disapproval over Moscow’s war in Ukraine.

The other somewhat bearish factor were reports on Friday that US officials were working to set up the personal meeting, probably in Riyadh, between President Joe Biden and Saudi Crown Prince Mohammed bin Salman. A warming in recently-fraught diplomatic relations between the two allies could ostensibly compel major oil producer Riyadh to consider U.S. requests for more supply.

For more than a year now, Saudi Arabia, which heads the 23-state global oil exporters alliance OPEC+, has ensured that the countries in the group provide less crude than needed by the market in order to maintain optimum prices for a barrel.

OPEC+, comprising the original 13 nations led by the Riyadh-led Organization of the Petroleum Exporting Countries and another 10 countries steered by Russia, have stuck to monthly increases of just above 430,000 barrels per day. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

This week’s volatility in oil came despite record high U.S. fuel prices, with gasoline nearing $5 a gallon at some pumps while diesel was well above $6.

Fuel prices have hit all-time highs as the United States experiences a severe squeeze in distilled oil products, particularly diesel, after the closure and downsizing of several refineries during the coronavirus pandemic. 

Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any of the money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. One motivation for the refineries to do that: record profits from the current situation that may be diluted in an expansion. The other is the long turn-around time for any new refinery to deliver a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. The bottom line: With no expansion plans on the horizon, the squeeze is only going to worsen.

Saudi Energy Minister Abdulaziz bin Salman last week downplayed any connection between the record high fuel prices in the United States with OPEC+’s actions, saying the lack of refineries was to blame. 

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” Abdulaziz said. 

His remarks were echoed by Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed. “There’s no new [refining] capacity coming,” the sheikh said. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”

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