Oil extends gains for a third day

Melbourne/Singapore — Oil prices rallied for a third day on Tuesday as producers Saudi Arabia and the United Arab Emirates looked unlikely to be able to boost output, while political unrest in Libya and Ecuador added to those supply concerns.

US West Texas Intermediate (WTI) crude futures rose $1.13, or 1%, to $110.7 a barrel at 3.32am GMT, extending a 1.8% gain in the previous session.

Brent crude futures advanced $1.26, or 1.1%, to $116.35 a barrel, adding to a 1.7% rise in the previous session.

The UAE and Saudi Arabia have been seen as the only two countries in the Opec oil cartel with spare capacity available to make up for lost Russian supply and weak output from other member nations.

“A seam of tight supply news bolstered the market. Two major producers, Saudi Arabia and the UAE, are said to be at, or very close to, near-term capacity limits,” Commonwealth Bank commodities analyst Tobin Gorey said in a note.

UAE energy minister Suhail al-Mazrouei said on Monday UAE was producing near maximum capacity based on its quota of 3.168-million barrels a day under the agreement with Opec and its allies, together called Opec+.

His comments confirmed remarks by French President Emmanuel Macron who told US President Joe Biden on the sidelines of the G7 nations meeting that the UAE was producing at maximum capacity and that Saudi Arabia could increase output by only 150,000 barrels a day, well below its nameplate spare capacity of about 2-million barrels.

Analysts also warned political unrest in Ecuador and Libya could tighten supply further.

Libya’s National Oil said on Monday it might have to declare force majeure in the Gulf of Sirte within the next three days unless production and shipping resume at oil terminals there.

Ecuador’s energy ministry said the country could suspend oil output within the next two days amid antigovernment protests. The former Opec country was pumping about 520,000 barrels a day before the protests.

Those factors underscore shortages in the market, which have led to a rebound this week, countering recession jitters that weighed on prices over the previous two weeks. But analysts from Haitong Futures said market sentiment remains fragile with people waiting for clearer guidance for the next move and geopolitical factors in focus.

Leaders of the G7 are discussing a potential price cap on Russian oil that would hit President Vladimir Putin’s war chest while also lowering energy prices.

A French presidential official called on global powers to explore all options to alleviate a Russian squeeze on energy supplies that has spiked prices, including talks with producing nations like Iran and Venezuela.

Reuters