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Oil is trading at around a two-month high, as refineries gear up for the summer driving season and traders fret over renewed tensions in the Middle East.
Benchmark Brent crude edged up to as high as $86.83 on Wednesday, having gained about $10 a barrel since the beginning of June. The US equivalent, West Texas Intermediate, advanced above $83 before slipping back.
Ahead of the latest data on crude stocks from the US Energy Information Administration, due later on Wednesday, analysts at Energy Aspects said they expected refineries to draw more than 2mn barrels a day from inventories in the third quarter in order to boost production. That would more than reverse the build-up of stocks in the first half of the year.
US gasoline demand is expected to rise strongly over the summer, with the American Automobile Association forecasting that travel during the holiday period will be 5.2 per cent higher than last year, with car travel rising 4.8 per cent.
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.