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U.S. West Texas Intermediate and international-benchmark crude oil futures are trading higher for a third session on Tuesday amid new worries over Saudi Arabia and the United Arab Emirates (UAE) ability to boost production significantly despite the urging of U.S. President Joe Biden. Meanwhile, political unrest in Libya and Ecuador is adding to supply concerns at the same time China may be easing COVID-19 restrictions.
At 10:51 GMT, August WTI crude oil is at $111.52, up $1.95 or +1.78% and September Brent crude oil is at $113.13, up $2.15 or +1.94%. On Monday, the United States Oil Fund ETF (USO) settled at $82.93, up $1.66 or +2.04%.
Saudi Arabia, UAE Unable to Boost Output Significantly
Since the Russian invasion of Ukraine began in late February, traders have thought that Saudi Arabia and the UAE have had the spare capacity to make up for lost Russian supply due to sanctions and weak output from other member nations who lack the infrastructure to increase production. But on Monday, traders found out that this wasn’t the case.
French President Emmanuel Macron told U.S. President Joe Biden on the sidelines of the Group of Seven nations meeting that the UAE was producing at maximum capacity and Saudi Arabia could increase output by only 150,000 bpd, well below its nameplate spare capacity of around 2 million bpd, Reuters reported.
Additionally, according to Reuters, UAE Energy Minister Suhail al-Mazrouei said on Monday the UAE was producing near maximum capacity based on its quota of 3.168 million barrels per day (bpd) under the agreement with OPEC and its allies, together called OPEC+.
More Supply Woes from Unrest in Libya, Ecuador
In another potentially bullish development, political unrest in Ecuador and Libya could tighten supply further.
Libya’s National Oil Corp said on Monday it might have to declare force majeure in the Gulf of Sirte area within the next three days unless production and shipping resume at oil terminals there, Reuters reported.
Meanwhile, Ecuador’s Energy Ministry said the country could suspend oil output completely within the next two days following anti-government protests.
Prices are rising on Tuesday because the numerous factors underscoring shortages in the market. These events are also offsetting recession jitters that helped drive prices to their lowest levels since May 19 just last week.
The rally could even extend further later this week if China continues to relax COVID restrictions.
The tight supply conditions are likely to continue over the near-term, and perhaps over the long-run as long as the war in Ukraine continues. The outlook is so bleak for lower prices that government officials are even considering capping Russian oil prices and negotiating with Iran and Venezuela for more oil.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire