DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the last trading session of July mostly higher, with the international crude benchmark Brent contract for September delivery expiring near a one-month high. The gains came ahead of next week's meeting among the Organization of the Petroleum Exporting Countries and Russia-led producers, with sources close to the ongoing negotiations suggesting the 23-nation alliance plans to keep crude production steady.

OPEC+ ministerial meeting scheduled for Aug. 3 is unlikely to result in a sizable production increase for September, according to media reports, countering claims by the White House that Saudi Arabia would boost oil production following President Joe Biden's visit to the Middle East earlier this month.

Sources close to OPEC+ talks suggest the group is leaning toward keeping their crude output target unchanged at 43.85 million barrels per day (bpd) for September or to increase production slightly as laggard members attempt to catch up on missed quotas. The OPEC+ agreement calls for both Saudi Arabia and Russia to produce 11 million bpd in August, followed by Iraq with a daily production quota of 4.7 million bpd and the United Arab Emirates at roughly 3.2 million bpd, according to OPEC+ following their June 30 meeting.

Speculation has swirled for weeks as to whether Saudi Arabia is capable to boost and sustain production capacity above 11 million bpd. Saudi Crown Prince Mohamed bin Salman recently said the kingdom will seek to increase its oil production to 13 million bpd as early as next year.

"We have an immediate capacity to increase production to 12 million bpd and with investments, production can go to 13 million bpd after which the kingdom will not have any additional capacity to increase production," he added.

The reality is that Saudi Arabia produced near 12 million bpd for only a brief period in April 2020 when Riyadh was locked in a bitter price war with Moscow.

Further supporting the oil complex is weakening U.S. dollar index that came under pressure from better-than-expected economic data in the Eurozone where the economy expanded by 0.7% during the second quarter compared with expectations for a modest 0.2% expansion. The drivers of the growth were Italy and Spain, where tourism industries boosted GDP growth by 1% and 1.1%, respectively. However, Germany, a traditional engine of the European economy, came to a standstill at 0% growth following a miniscule 0.2% expansion during the first three months of the year.

Surprising economic growth in southern Europe came even as inflation across the continent climbed to a fresh record-high 8.9% in July, fueled by higher energy prices and disrupted trade routes due to Russia's assault in eastern Ukraine. Energy prices surged by 39.7%, only slightly lower than the previous month, while prices for food, alcohol and tobacco rose by a larger-than-expected 9.8% -- a troubling sign that inflation is becoming ever more entrenched.

Domestically, gross domestic product for the second quarter unexpectedly fell 0.9% in the second quarter, fueling a fierce debate among economists and policymakers of whether the United States has fallen into recession. During the first three months of 2022, the economy contracted by a 1.6% annualized rate. Yet, the recessionary economy doesn't typically produce jobs. Employers in the United States added more than 2.7 million new positions since the beginning of the year, with the unemployment rate falling to a near-50-year low 3.6%. While some focus is on the strength of the labor market, the GDP report unequivocally points to a significant slowdown in multiple sectors of the economy.

At settlement, West Texas Intermediate futures for September delivery rallied $2.20 to $98.62 per barrel (bbl). Brent September futures expired $2.87 higher at $110.01 per bbl, while the next-month delivery October futures expanded its discount to the now expired contract to $6.04 per bbl with a settlement at $103.97 per bbl.

NYMEX August RBOB contract advanced 2.35 cents for a $3.4881-per-gallon expiration while expanding its premium to the September contract to 37.49 cents -- a fresh 10-year high backwardation for the prompt gasoline spread. NYMEX August ULSD futures expired at $3.6247 gallon, down 6.16 cents on the session, while the September contract settled at $3.5490 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com