ISLAMABAD: After a volatile week of reversals and re-reversals, oil prices are likely to stay at elevated levels in the week starting today (Monday) as the OPEC+ is seen keeping its current course.
However, the number of oil and gas rigs in the United States rose by 9 last week and the total rig count is now 500, up 256 from the same time last year—the highest rig count since April 2020, but still down sharply from the 790 active rigs prior to the pandemic. The US oil rig count rose by 10 this week to 397, while the number of gas rigs fell by 1.
Oil markets started off last week under pressure as continued speculative long liquidation amid delta variant demand concerns weighed on prices. However, in an ironic twist, the oil market got a boost from an unlikely source on Wednesday as the Biden administration announced it was pleading with OPEC+ members to increase oil production to stem inflationary pressures from rising domestic gasoline prices.
At the end of the week, Brent, the international benchmark for two-thirds of the world’s oil, shed $0.72 (-1.01 percent) to reach $70.59 a barrel. Similarly, the US West Texas Intermediate (WTI) reached $68.44, down by $0.65 (-0.94 percent). The price for Opec Basket was recorded at $71.32 a barrel with 1.13 percent increase, Arab Light was available at $71.88 a barrel with 0.72 percent decrease, while the price of Russian Sokol slipped to $70.77 after shedding 1.10 percent.
Looking forward, the oil market is heading into next week with a mixed technical picture. On the bullish side of things, the spot Brent contract recaptured the psychologically important $70/bbl level on the upside last week, but on the other hand, the market remains below its 20-day moving average.”
Looking at the big picture though, inflation remains a key concern for consumers, politicians, and investors alike. This dynamic was on full display this week as the Biden administration pleaded for OPEC+ to pump more oil and reduce gasoline prices.”
It is not expected that OPEC+ will change course on its already agreed to production increases and, as such, it is expected that oil prices will likely stay high and US balances will remain tight. Furthermore, this dynamic could work to reignite inflation-driven commodity index flows from large asset managers that have been so important to the oil market this year.
On the other hand, the EIA’s estimate for oil production in the United States for the week ending August 6 rose by 100,000 bpd to an average of 11.3 million barrels per day, which is nearly 2 million barrels per day short of the levels produced prior to the pandemic.