WASHINGTON (DTN) --
West Texas Intermediate futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled higher for the third consecutive session on Tuesday after top leaders at the Group of Seven meeting highlighted concerns that producers in the Middle East are currently pumping oil near-maximum capacity, leaving no room for a significant production boost to offset the potential loss of Russian oil barrels on the global oil market.
Furthermore, political unrest in Libya and Ecuador tied to civil strife and inflation has further added to concerns over a tight global oil market. Ecuador is a 520,000-bpd oil producer but nearly half of the country's production is offline due to spreading demonstrations. According to the country's oil minister, Juan Carlos Bermeo, all of Ecuador's crude output will be shut in the next 72 hours should protests continue.
In Libya, a country that has been torn by eight years of the brutal civil war, three major oil ports in the Gulf of Sitre will be shut until the end of this week due to ongoing violence in the oil fields. Libya's crude production has roughly halved since mid-April to 600,000 bpd, according to Bloomberg estimates.
Amid those headwinds, comments regarding maxed-out production capacity from United Arab Emirate's Energy Minister, Suhail Faraj Al Mazroui, caught the attention of the market on Tuesday, further stoking fear that Middle Eastern producers do not have enough room to boost output this year. 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.
G7 nations agreed in principle to study a potential price cap on Russian oil and gas exports, which could include the lifting of a European Union 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. The goal of the proposal is two-fold -- curb inflation while minimizing Russia's oil revenue.
The EU ban on seaborne Russian crude oil imports begins in December, so a price cap would allow Europe to pay less for Russian oil shipments until the ban goes into effect.
In theory, Russia should be exporting less oil as a result of sanctions, and at a steep discount to the global benchmark but a spike in global oil prices has been enough to keep its revenues healthy. The International Energy Agency estimates Russian oil export revenues were roughly $20 billion in May, around the same as pre-invasion levels in January.
At settlement, NYMEX August West Texas Intermediate futures advanced $2.19 to $111.76 bbl and ICE Brent crude for August delivery rallied to $117.98 bbl, up $2.89 on the session. NYMEX July RBOB contract added 9.79 cents to $3.9351 gallon and NYMEX July ULSD futures declined 3.08 cents to $4.1994 gallon.
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