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OIL FUTURES: Crude settles higher as market eyes Pelosi's Taiwan trip, OPEC+ meeting

Highlights

House Speaker Pelosi visits Taipei

Beijing condemns, launches military drills

OPEC+ to meet Aug. 3

  • Author
  • Chris van Moessner
  • Editor
  • Derek Sands
  • Commodity
  • Oil Petrochemicals

Crude oil futures finished a volatile session higher Aug. 2 as markets weighed the geopolitical impact of US House Speaker Nancy Pelosi's trip to Taiwan and the potential supply impact of an Aug. 3 OPEC+ meeting.

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NYMEX September WTI settled up 53 cents at $94.42/b, and ICE October Brent climbed 51 cents to $100.54/b.

Pelosi's visit to Taipei drew rebuke from Beijing, which announced it would carry out a series of military drills near Taiwan in coming days. Market watchers had widely expected the visit to draw a response from mainland China, however, the session's volatility underscored the high degree of uncertainty surrounding the extent to which Beijing is willing to defend its claims to the island.

"China's response to Pelosi's trip to Taiwan could have an impact on supply chains and demand, which could keep the inflationary pressures going strong," OANDA senior market analyst Ed Moya said in a note, adding: "No one doubted China would react, so that is why markets did not overreact."

NYMEX September RBOB settled 5.86 cents higher at $3.0567/gal, while September ULSD declined 5.96 cents to $3.3804/gal.

On the supply front, all eyes were on the next OPEC+ meeting Aug. 3, when the alliance is set to discuss oil production targets for September.

Under the current OPEC+ pact, the group in August will eliminate the last of its output cuts and restore quotas to prepandemic levels. The US and other major consuming economies have pushed OPEC+ leaders to continue hiking production -- a major topic of discussion surrounding US President Joe Biden's July 15-16 summit in Jeddah.

The output decision will show how the alliance, in particular Saudi Arabia and the UAE, has assessed the market's outlook, including the prospects of a global recession that would take a bite out of oil demand.

OPEC+ has downgraded its global oil supply surplus estimates to 800,000 b/d for 2022, compared with 1 million b/d in the last analysis before the group's June 30 meeting, according to a market report issued by the OPEC secretariat to delegates and seen by S&P Global Commodity Insights.

However, the analysis assumes that OPEC+ crude production will grow 500,000 b/d from July to August and remain at that level through the end of the year -- a doubtful proposition given that many members have been struggling for months to hit their output targets.