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Oil prices have climbed to a two-month high, as refineries gear up for the summer driving season and traders fret over renewed tensions in the Middle East.
International benchmark Brent crude edged up to as high as $86.92 on Wednesday, having gained about $10 a barrel since the beginning of June. The US equivalent, West Texas Intermediate, advanced to $83.53 before slipping back.
A weekly report from the US Energy Information Administration showed that US commercial inventories of crude oil fell by 12.2mn barrels compared with the previous week, as refineries stepped up to produce more fuel for what is expected to be a record season of summer travel. The EIA said inventories were now about 4 per cent lower than the five-year average for this time of year.
In addition, the EIA said that over the past four weeks the US had seen a 9 per cent increase in oil imports, compared with the same period last year. Gasoline inventories, meanwhile, fell by 2.2mn barrels week on week and are 1 per cent below the five-year average.
Gasoline and jet fuel demand is expected to rise strongly over the next few weeks. The American Automobile Association expects that the July 4 holiday week will see more than 7mn people travel, the highest number since before the Covid pandemic.
Supplies of oil have also tightened. “Already in June, Opec+ exports are sharply lower, led by the Gulf countries and Iraq, in part due to summer crude burn amid the ongoing heatwave in the Middle East,” Energy Aspects said in a research note, referring to higher demand for power due to greater air conditioning usage.
The price of oil fell sharply at the beginning of June after members of Opec+ said they would gradually try to reintroduce 2.2mn barrels of cut production back into the market, starting from September.
After heavy selling, the oil cartel released a video on June 5 of a briefing with analysts in which Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, gave reassurances that members would only increase production subject to market conditions. Since then, the oil price has steadily rallied, with Brent crude rising from a low of $76.76 a barrel on June 4.
Other factors playing into rising prices include concerns over a potential escalation in the conflict between Israel and Hizbollah. In the options market, traders have built up bets on oil rising further if it breaks through the $90-a-barrel mark. However, fears that Hurricane Beryl would disrupt production in the Gulf of Mexico ahead of the US July 4 holiday have receded.
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