Oil prices start the new month, quarter, and financial year today on the back foot after a soft end to June.
The outlook remains clouded by worries about the situation in Middle East hot spots and the strength of global demand, with the US, EU, Japan, and China all facing possible economic slowdowns that may push growth deeper towards recession.
OPEC and OPEC+ are unstable regarding their production policies. OPEC members continue to indulge in a bit of cheating, as does Russia. The International Energy Agency sees a slide in demand in the next six months, while the surge in US output seems to be slowing.
Brent ended June down slightly at $84.97. That was off 0.06% for the week but up 13% year-to-June and 10.24% year-to-date.
US West Texas Intermediate crude ended June at $81.54, up 16.8% for the year but off 1% for the week. It was up 14% year-to-date.
However, falling oil rig use in the US continues to be a dominant theme in the world’s biggest producer.
Energy services group Baker Hughes reported Friday that active US oil rigs in the week ending June 28 fell by six to a 2-1/2 year low of 479 rigs, down from 485 a week earlier.
The number of US oil rigs has fallen over the past year and a half from the 4-year high of 627 rigs posted in December 2022.
Rig numbers ended 2023 at 500 and 545 at the end of June a year ago, so the slide has been substantial.
Total rig numbers a year ago were 674; at Friday’s count, they were 581.
Gas rig numbers fell by one to 97; a year ago, they totaled 124.
The fall in rig use is all about improving productivity. US daily output is running at 13.2 million barrels, a million barrels a day more than in June last year.
"From a relatively weak start to the year amid concerns about Chinese demand and the negative impact of high funding costs following the most aggressive rate-hiking campaign by the US Federal Reserve in decades, the crude oil market has since moved higher, with most of the major movements being driven by the ebb and flow of a geopolitical risk premium, and with that the buying and selling from hedge funds looking for momentum," Saxo Bank Head of Commodity Strategy Ole Hansen said in a Friday note.
Government data showed Wednesday that commercial crude stockpiles in the US increased by 3.6 million barrels to 460.7 million barrels through the week ended June 21, contrary to the market estimate of a drawdown of 2.8 million barrels.
Crude prices, though, continue to receive underlying support from concerns about the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran.
Meanwhile, ongoing attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert their vessels around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil movements.
