London — Oil prices were stable on Tuesday as the market balanced risk sentiment with supply concerns and the prospect of higher demand as China relaxes its Covid curbs.
Brent crude futures were down 38c, or 0.3%, at $119.13 barrel at 9.26am GMT, while West Texas Intermediate was down 25c, or 0.2%, at $118.2/bbl, having risen by more than $1/bbl earlier in the session.
“Risk sentiment is responsible for the drop, with European equity markets negative,” said UBS analyst Giovanni Staunovo.
US State department authorisation for Eni and Repsol to start shipping Venezuelan crude to Europe from July to replace lost Russian barrels has also weighed on prices in recent days.
But analysts expect the sluggish price action to be short-lived as Beijing and commercial hub Shanghai have been returning to normal in recent days after two months of painful lockdowns to stem outbreaks of the Omicron variant of Covid-19.
Further bullish sentiment came after analyst questioned whether last week’s production policy decision by Opec and allies, or Opec+, would alleviate tight supply.
The cartel’s decision to increase crude output to 648,000 bbl/day in July and August is unlikely to improve the global oil balance as members struggle to achieve quota increases and as the rise is lower than the loss of Russian crude oil, analysts said. This is probably acknowledged by Saudi Arabia itself, PVM Oil’s Tamas Varga said.
Top oil exporter Saudi Arabia raised the July official selling price (OSP) for its flagship Arab light crude to Asia by $2.10 from June to a $6.50 premium over Oman/Dubai quotes.
The quota increase from Opec+ also fails to address the shortage in oil products, analysts said.
“Refining margins globally suggest that demand for petrol and diesel remain in heavy demand, with the refining logjam in refined products backstopping crude prices,” Jeffrey Halley, a senior Asia Pacific market analyst at Oanda.
Elsewhere, US crude inventories are likely to have fallen last week, while petrol and distillate stockpiles were seen higher, according to respondents to a preliminary poll by Reuters on Monday.