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Futures Movers: Oil prices post a loss for the month, but log strong first-half gains

Oil futures ended lower on Thursday and posted a loss for the month, as a weekly increase in U.S. gasoline and distillate supplies raised worries over price-related demand destruction and major oil producers pledged to boost production by 648,000 barrels a day in August, as expected.

Price action

West Texas Intermediate crude for August delivery
CL.1,
-3.66%

CLQ22,
-3.66%

fell $4.02, or 3.7%, to settle at $105.76 a barrel on the New York Mercantile Exchange. Prices based on the front-month contracts traded nearly 41% higher year to date and gained 5.5% for the quarter, but lost 7.8% for the month, according to Dow Jones Market Data.

On its expiration day, global benchmark August Brent crude
BRNQ22,
-1.19%

lost $1.45, or nearly 1.3%, to $114.81 a barrel on ICE Futures Europe, trading almost 48% higher for the year and up over 6% for the quarter, but down 6.5% for the month. The most active September contract
BRN00,
+0.08%

BRNU22,
+0.08%

fell $3.42, or 3%, to settle at $109.03 a barrel.

Back on Nymex, July gasoline
RBN22,
-5.16%

fell 4.6% to $3.6498 a gallon, down nearly 11% for the month, while July heating oil
HON22,
-3.18%

declined 3.4% at $3.8982 a gallon, losing almost 5% for the month. Both contracts expired at the end of the session.

August natural gas
NGQ22,
-14.14%

dropped 16.5% to $5.424 per million British thermal units, tallying a monthly loss of more than 33%.

Market drivers

Oil has led the overall gains in the the commodity sector so far this year on tight supplies, but prices ended the month lower on recession worries.

Read: Energy leads commodities surge with oil up roughly 50% in first half of 2022

On Thursday, OPEC+ — the Organization of the Petroleum Exporting Countries and its allies — confirmed a proposal to boost output by another 648,000 barrels a day in August, matching its July increase and in line with its announcement following an early June meeting. The decision was widely anticipated.

Still, OPEC+ output “seems insufficient to balance the market,” Roberta Caselli, commodities research analyst at Global X, told MarketWatch in emailed comments. “Supply risks still look high, considering the dislocated Russian exports and likely outages in Libya and Ecuador,” and OPEC’s key producers, Saudi Arabia and the United Arab Emirates, might “already be operating at near-maximum capacity.”

“ “Ongoing supply tightness will likely balance the market, but the risk of declining demand is real should inflationary pressures persist and consumer strength start to wean.” ”

— Roberta Caselli, Global X

Meanwhile, short-term oil demand may improve further due the “Chinese reopening and summer travel picking up,” Caselli said. She expects “ongoing supply tightness will likely balance the market, but the risk of declining demand is real should inflationary pressures persist” and consumer strength start to wane.

Read: Here’s how far oil could fall in a recession, judging by past experiences

There’s likely to be further tightness in spare production capacity and this tightness “makes the system fragile to any further marginal losses,” Hakan Kaya, senior portfolio manager at Neuberger Berman, told MarketWatch. Under these conditions, absent any recession, “we expect markets to continue to offer a scarcity premium.”

On Wednesday, the Energy Information Administration released data showing declines in U.S. crude supplies in the past two weeks, totaling more than 3 million barrels, excluding oil from Strategic Petroleum Reserve.

However, the report also showed increases of 2.6 million barrels each for supplies of gasoline and distillates for the week ended June 24. Survey forecasts for declines of 875,000 and 525,000 barrels for gasoline and distillates, respectively.

Read: Gasoline prices have fallen, but probably haven’t peaked yet

Refineries operated at 95.0% of their operable capacity last week — the best reading in 30 years, said Phil Flynn, senior market analyst at The Price Futures Group, in a note. Gasoline production also increased last week, averaging 9.5 million barrels per day and exceeding demand, he said.

Natural-gas futures dropped more than 16% Thursday after data from the EIA showed domestic natural-gas supplies rose by 82 billion cubic feet for the week ended June 24. That compared with an average forecast for an increase of 74 billion cubic feet from analysts polled by S&P Global Commodity Insights.

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