Oil prices inched higher on Monday as worries about tight supply persisted even as investors eyed the release of supplies from strategic reserves from consuming nations and a truce in Yemen sparked hopes that supply issues in the Middle East could abate.
U.S. West Texas Intermediate crude was at $103.07 a barrel, up $3.68, or 3.70%. Both contracts slipped $1 when markets opened on Monday.
The United Nations has brokered a two-month truce between a Saudi-led coalition and the Houthi group aligned with Iran for the first time in the seven-year conflict. Saudi oil facilities have come under attack by the Houthis during the conflict, adding to supply disruption from Russia.
“Still, the fragile detente does little to alleviate the absence of Russian oil,” said Stephen Innes, managing partner at SPI Asset Management in a note.
Oil and gas condensate production at the world’s No. 2 exporter fell to 11.01 million barrels per day (bpd) in March, from an average output of 11.08 million bpd in February, industry sources said. The Russian oil industry has been hit by Western sanctions and buyer aversion after Russia’s invasion of Ukraine. Estimates of the Russian oil supply loss range from 1 million to 3 million bpd.
Oil prices slumped about 13% last week after U.S. President Joe Biden announced that up to 1 million bpd of oil would be sold from the U.S. Strategic Petroleum Reserve (SPR) for six months starting in May. Biden said the release, the third in the past six months, will serve as a bridge until domestic producers can boost output and bring supply into balance with demand.
The U.S. Energy Department formally outlined a sale of oil from emergency reserves while members of the International Energy Agency also agreed to release more oil on Friday. The IEA said the volume will be made public this week.
“The joint efforts of the U.S. and its allies could temporarily balance off the supply shortfalls in 2022, but it might not be a long-term solution,” said Tina Teng, a markets analyst at CMC Markets APAC & Canada in a note.
“Also, the U.S. oil producers may be reluctant for an output increase to keep profit high.”
Despite calls from Biden for U.S. energy firms to ramp up production, growth in rig count remains slow as drillers continue to return cash to shareholders from high crude prices rather than boost production.
Demand concerns in China, the world’s top oil importer, persist as its most populous city, Shanghai, has extended COVID-19 lockdowns.
China’s transport ministry expects a 20% drop in road traffic and a 55% fall in flights during the three-day Qingming holiday that starts on Sunday due to a flare-up of COVID-19 cases in the country.