Oil extended gains after Saudi Arabia signaled confidence in demand with a bigger-than-expected price increase of its crude for Asia.
West Texas Intermediate traded near $120 a barrel after earlier rising to the highest level in almost three months. Saudi Arabia boosted its official selling prices for Asian customers in July as China - the world’s top crude importer - cautiously emerges from virus lockdowns that have strained its economy.
Oil has rallied almost 60 per cent this year as rebounding demand from economies recovering from the pandemic coincided with a tightening market after Russia’s attack on Ukraine. The war has fanned inflation, driving up the cost of food to fuels and prompted aggressive monetary tightening from central banks.
OPEC+ last week agreed to accelerate output following repeated calls by the US to pump more. The cartel said it would add 648,000 barrels a day for July and August, about 50 per cent more than the increases seen in recent months. However, the group has struggled recently to meet its supply targets, raising doubts about whether it would be able to meet the goal.
The fuel market has also tightened considerably, just as the peak period for US demand kicks off with the summer driving season. Retail gasoline prices have rallied to a record, while futures in New York hit a fresh high on Monday.
“The peak demand season is here,” said Chen Shuxian, an analyst with Cinda Securities Co. in Shanghai. The summer driving period in the US and Europe will underpin higher consumption, while China’s demand will recover with the easing of virus restrictions, Chen added.
Saudi Aramco raised its key Arab Light crude grade for Asian customers by $2.10 a barrel from June to $6.50 above the benchmark it uses. The market was expecting a boost of $1.50, according to a Bloomberg survey. Aramco also increased its prices for northwest Europe and Mediterranean regions.
Brent remains steeply backwardated, a bullish structure where near-dated contracts are more expensive than later-dated ones. The prompt timespread for the global benchmark was $2.72 a barrel in backwardation, compared with $2.69 on Friday. For WTI, the spread was near $3.