WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended higher in early trade Tuesday after Saudi Arabia and the United Arab Emirates signaled they were unlikely to boost oil production significantly in the coming months, while political unrest in Libya and Ecuador added to concerns over a tight global oil market.
UAE's Energy Minister Suhail al-Mazroui on Monday said the major oil producer was near its maximum production capacity based on its current OPEC+ production baseline, which is 3.168 million barrels per day (bpd). The UAE along with Saudi Arabia can only add about 150,000 bpd over the next six months, according to remarks by al-Mazroui to French President Emanual Macron, reminding policymakers and investors how tight the global oil market actually is amid talks of a new round of sanctions against Russian oil exports. The Group of Seven Wealthy nations, known as G7, agreed in principle to study a potential price cap on Russian oil and gas exports, which could include the lifting of an EU shipping ban agreed upon earlier this month, while no further details of negotiations have been made public. The proposal reportedly includes a stipulation that would allow insurers to cover Russian oil shipments only if the sales price falls under a cap. No details of what that price cap would look like have been released.
Separately, Libya's National Oil Corp. said on Monday it might have to declare force majeure in the Gulf of Sirte area within the next three days unless production and shipping resume at oil terminals there. The Gulf of Sirte includes the exports terminals of Es Sider, Ras Lanuf, Brega and Zueitina.
Libya's crude production has roughly halved since mid-April to 600,000 bpd, according to Bloomberg estimates. The NOC's move comes as Libya grapples with protests that are forcing many oil fields and ports to shut down. No individual or minister should be allowed to use the oil sector as a bargaining chip, NOC Chairman Mustafa Sanalla said.
"The situation is quite dangerous," he said. "There are closures in the Sirte region and there are people who try to demonize the oil sector."
In Ecuador, antigovernment protests are about to bring oil production there to a standstill within 72 hours, according to the country's oil minister Juan Carlos Bermeo.
The former OPEC country was pumping around 520,000 bpd before the protests.
Led by umbrella indigenous organization CONAIE, demonstrators are demanding higher fuel subsidies, a moratorium on new oil and mining projects, and a slowdown of moves to privatize state assets amid broader criticism of conservative President Guillermo Lasso's plan to overhaul the economy with support from the International Monetary Fund. Ecuador preemptively declared force majeure on oil contracts to avoid penalties from being unable to ship scheduled deliveries. It's the second force majeure since Dec. 12 after erosion threatened to snap its two oil pipelines. Oil production dipped to a low of 101,700 bpd during that event, the lowest since at least January 2010.
Domestically, manufacturing activity in Texas slowed for the second straight month in June, plunging it to the lowest level since May 2020 when the country was in lockdown amid COVID-19 pandemic, according to a survey released Monday by the Federal Reserve Bank of Dallas. The index for general business activity, which assesses broader business conditions, fell to minus 17.7 from minus 7.3 the previous month, well below the zero threshold which separates expansion from contraction.
"You can't ignore the economic fundamentals leading to a likely recession, and the administration [in Washington] is either stubborn or as paralyzed as a deer in headlights," said a transportation equipment manufacturer. "The Federal Reserve is slow to react and will have to hit the brakes harder than they should have had to do."
U.S. Federal Reserve lifted the federal funds rate by a rare 75-basis points earlier this month, the largest single meeting increase in rates in 28 years, in the face of broadening inflation, with more aggressive rate increases likely in the coming months.
U.S. gross domestic product is now expected to grow 2.9% in 2022, lower than its recent forecast of 3.7% in April, IMF Managing Director Kristalina Georgieva said in an annual assessment of U.S. economic policies over the weekend.
"Based on the median projection for the policy rate published at the June [Federal Open Market Committee] meeting, we expect the U.S. economy will slow in 2022-23 but narrowly avoid a recession."
Near 7:30 AM ET, NYMEX August West Texas Intermediate futures advanced $1.67 to $111.26 bbl and ICE Brent crude for August delivery rallied above $117 bbl, up $2.06. NYMEX RBOB July contract advanced 5.4cts to $3.8812 gallon and NYMEX July ULSD futures decline 1.17cts to $4.2185 gallon.
Liubov Georges can be reached at email@example.com