Oil prices increased by about 1% on Monday, June 23, 2024, driven by the anticipation of robust summer driving demand and escalating tensions in the Middle East, including drone attacks on Russian refineries, which raised supply concerns.
A weaker U.S. dollar also contributed to the rise in crude prices.
Brent futures for August delivery settled at $86.01 per barrel, up 77 cents, or 0.9%. U.S. crude settled at $81.63 per barrel, increasing by 90 cents, or 1.1%.
Both benchmarks gained approximately 3% last week, marking their second consecutive weekly increase.
“The chief underlying reason behind the price strength … is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referencing the seasonal demand for oil products.
After a significant drop in U.S. crude and gasoline inventories last week, traders are awaiting Wednesday’s report to see if it will confirm sustained strong gasoline demand, said Bob Yawger, director of energy futures at Mizuho in New York. “It has to sustain for this positive narrative to continue in the market,” Yawger noted, adding that the rise of the electric vehicle market is reducing gasoline’s share of the transportation market.
However, the gasoline-driven rally may slow in the coming weeks as inflation impacts summer travel spending, warned Jim Ritterbusch of Ritterbusch and Associates. “We still expect a significant falloff in demand next month especially with the recent uplift in retail pricing further curtailing vacation plans,” Ritterbusch said.
Geopolitical risks in the Middle East and an increase in Ukrainian drone attacks on Russian refineries also supported oil prices.
On Monday, EU countries agreed on a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) in the EU for shipment to third countries.
A softer U.S. currency made dollar-denominated commodities like oil more attractive to buyers using other currencies.
The dollar weakened from a near eight-week high as traders anticipated potential intervention to support the yen after the Japanese currency approached the 160 per dollar level. The dollar index, measuring performance against six major currencies, had climbed on Friday and was up slightly on Monday after data showed U.S. business activity at a 26-month high in June.
In Ecuador, state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for export following the shutdown of a pipeline and oil wells due to heavy rain, sources said on Friday.
