Oil eked out a small weekly gain heading into the holiday weekend. WTI settled at $115.07 on Friday, up $1.84 on the week. Bal 2022 found more support than the prompt month (if we include the roll of the contract from June to July), rising by $5.13 to $107.36. Cal 2023 had similar gains, finishing at $91.45, up $4.12 on the week.
Rising global fuel prices continue to weigh on consumers and push governments to intervene. The Biden administration is reaching out to oil companies to inquire about shuttered refineries, according to Bloomberg. The average retail gasoline price remains near all-time highs in the U.S. at $5.53/gal, according to AAA. Diesel prices are much the same as product inventories are at the lowest in 10 years.
China and India prove willing to take advantage of shunned Russian oil exports. A record amount of Russian oil is aboard tankers, headed to India and China. According to ship tracking firm Kpler, up to 79 MMBbl of Russia’s oil is on ships. That is more than double the 27 MMBbl that was floating or in transit just before the February invasion of Ukraine. Asia’s ability to absorb some of Russia’s exports ameliorates the global supply shortage that would arise from removing Russian petroleum. Time will tell if countries like India, which are likely to receive political pressure from the U.S. for supporting Russia’s oil industry, will continue buying. Europe is still in the process of working through a policy to ban Russian oil imports. The embargo has been on hold as countries heavily dependent on Russian energy are against the measure.
AEGIS hedging recommendations remain costless collars for those looking to add volumes. Our view remains that the forward curve is undervalued and has more risk to the upside. The market is rightly concerned about supply scarcity. Recession concerns continue to grow, but the impact on oil prices may be muted for now, because the likelihood of excess oil supply is quite low, even if the economy slows.