We kick off the week with both Brent and West Texas Intermediate (WTI) futures trading lower, despite ongoing flare-ups in the Middle East. The impact of Israel’s attack on Iran on Friday had a brief and relatively limited impact on oil markets, with Brent down about $4 from those highs.
One reason: Ample supplies of oil, particularly in the Middle East, are limiting the impact these events are having on prices.
The OPEC+ producer group has plenty of room to crank up production, with the International Energy Agency (IEA) estimating that its spare capacity stands at around 6 million barrels per day, or 6% of world demand. In places like Libya, oil output has recovered from outages it faced earlier this year.
Meanwhile, supply from the United States remains plentiful. U.S. oil inventories rose by 2.7 million barrels last week to 460 million barrels, double expectations, as refining slowed for a third week in a row. Crude exports from the United States to Europe are higher year on year.
Brent is currently trading around $86.15 a barrel, while June West Texas Intermediate (WTI) is trading around $81 a barrel, both down more than a dollar.
The economy has also continued to weigh on prices, with Chicago Federal Reserve President Austan Goolsbee on Friday warning that progress in bringing down inflation has “stalled” this year.
While the geopolitical risk premium appears to be unwinding, supply disruptions have remained front and center in Russia, where this weekend Ukraine attacked eight separate locations with long-range strike drones, setting ablaze a fuel depot and power substations.
Although Russia has been able to repair some key oil refineries hit by drones, some 10% of capacity remains offline, according to Reuters calculations. That outage had previously totaled 14%, or 907,000 barrels per day.
