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Oil swings after hitting three-month high on Saudi price hike

UPDATED: Mon., June 6, 2022

An oil pump jack is shown in Midland, Texas, on April 7, 2022.   (Bloomberg)
An oil pump jack is shown in Midland, Texas, on April 7, 2022.  (Bloomberg)
By Julia Fanzeres and</p><p> Alex Longley Bloomberg

Oil fluctuated as news that India is looking to double down on Russian crude. That weighed on an earlier rally driven by Saudi Arabia’s bigger-than expected price increase for deliveries to Asia.

West Texas Intermediate swung between gains and losses after earlier topping $120 a barrel, trading near a three-month high.

Indian refiners are working on finalizing new six-month supply contracts for Russian crude, which if secured would be on top of the country’s existing purchases from Russia.

Earlier in the session, prices rallied as Saudi Arabia’s boost in its official selling prices was seen as a bullish driver.

“Energy traders are confident this oil market will remain tight given the short-term supply outlooks from both OPEC+ and the U.S., but it has been a steady climb higher after two months and exhaustion could be settling in,” said Ed Moya, senior market analyst at Oanda.

Oil has rallied almost 60% this year as rebounding demand from economies recovering from the pandemic coincided with a tightening market after Russia’s invasion of Ukraine.

Fuel markets have also tightened considerably, just as the peak period for U.S. 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 kingdom’s signaled confidence in demand with a bigger-than-expected price increase of its crude for Asia for July.

This comes as China cautiously emerges from virus lockdowns that have strained its economy.

Last week, OPEC+ agreed to accelerate output increases following repeated calls by the U.S. to pump extra volumes.

The producer group said it would add 648,000 barrels a day for July and August, about 50% 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.

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.

The company also increased its prices for northwest Europe and Mediterranean regions.

Brent remains steeply backwardated, a bullish structure in which near-dated contracts are more expensive than later-dated ones.

The prompt time spread for the global benchmark touched $2.84 a barrel in backwardation earlier in the session.

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