Oil prices experienced a noteworthy increase on Monday, with a surge of approximately a dollar per barrel. The cause of this rise is linked to the prospect of constricting supplies, particularly in Canada and other regions. However, the market is simultaneously experiencing pressure due to fears of an impending recession.
Fluctuating Rates of Brent Crude and U.S. West Texas Intermediate Crude
As of 12:02 p.m. EDT (1602 GMT), Brent crude futures were trading higher by $1.33, marking a 1.8% increase, settling at $75.50 per barrel. Meanwhile, U.S. West Texas Intermediate crude experienced a similar rise, hitting $71.34 a barrel, up by $1.30 or 1.9%.
Alberta Wildfires Impact Crude Supply, Sparking Price Increase
Alberta, Canada, is grappling with rampant wildfires, substantially reducing crude supply. Mizuho analyst Robert Yawger highlighted that these worsening conditions had stirred fears and triggered a rise in prices. Last week alone, Alberta witnessed a shutdown of at least 300,000 barrels of oil equivalent per day (boepd) production. To put this in perspective, wildfires in 2016 disrupted over a million boepd of production in the same region.
Potential U.S. Repurchase and OPEC+ Output Cuts Contribute to Oil Price Support
Contributing to supporting oil prices, U.S. Energy Secretary Jennifer Granholm hinted that the U.S. might commence repurchasing oil for the Strategic Petroleum Reserve (SPR) following the completion of a congressionally mandated sale in June. Furthermore, global crude supplies could face further tightening in the year's second half as OPEC+ (the Organization of the Petroleum Exporting Countries and allies, including Russia) plans additional output cuts.
Northern Iraqi Crude Oil Flow Interruption Keeps Global Supplies Tight
Industry sources revealed on Monday that northern Iraqi crude oil flows to Turkey's Ceyhan port did not resume following Baghdad's request for a restart last week. This interruption is contributing to the tightness in global supplies.
Global Economic Slowdown Impacts Oil Price Gains
Despite the surge in oil prices, fears surrounding a slowdown in the global economy have managed to cap these gains. Oil benchmarks dropped for a fourth consecutive week last week, marking the longest streak of weekly declines since September 2022. This downturn is primarily attributed to fears of a U.S. recession and potential risks of a historic default on government debt in early June.
Analyst Views on Future Oil Price Trends
OANDA analyst Craig Erlam suggests that if credit conditions improve in the coming months, alleviating economic fears for the world's largest economy, oil prices might experience a rebound without external assistance. However, he cautioned that such a bounce-back might be premature at this stage.