DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the last trading day of July with sharp gains, propelled by expectations for tighter supply availability from OPEC+ heavyweights Saudi Arabia and Russia, while improved inflation and growth outlook in the United States further boosted demand expectations for the second half of the year.

WTI September futures on NYMEX advanced for the fourth straight session on Monday to a 15-month $81.80-per-barrel (bbl) high settlement on the spot continuous chart after breaking through the 200-day moving average on July 24. ICE Brent futures for September delivery expired $0.57 per bbl higher on Monday at a 15-week spot high $85.80 per bbl, with the October contract narrowing its discount to $0.13 per bbl on the session.

Both WTI and Brent contracts advanced 15% in July, the largest monthly gain since January 2022.

A combination of production cuts from OPEC+ and an improved U.S. macroeconomic outlook have lifted the crude complex to fresh highs in July. Saudi Arabia and Russia, OPEC+'s two largest oil producers, are expected to extend production and export cuts, respectively, into the final months of the year when they meet on Thursday, Aug. 3, for a Joint Ministerial Monitoring Committee meeting.

OPEC+ has implemented some 3.7 million barrels per day (bdp) in output reduction since October, with Riyadh topping the deal with a unilateral 1-million-bpd production cut for July and August, putting upward pressure on oil prices. Traders and analysts expect Saudi Arabia this week to rollover its unilateral cut into at least September, when the Atlantic Basin hurricane season peaks, further tightening the global supply balance.

According to market sources, traders in Asia have increasingly turned to supplies outside OPEC+, namely the United States and North Sea, as Saudis and Russians cut back on exports. In terms of strategy, Riyadh has been vocal that it is targeting higher oil prices to meet vast socioeconomic projects included in its "Saudi 2020 Vision."

Russia, which has been forced to reengineer its oil trading amid Western sanctions for its full-scale invasion of the Ukraine, has rerouted millions of barrels in oil and refined products exports to the Asian region. Moscow is interested in pushing oil prices as high as possible so it can narrow the discount for its barrels. Some analysts estimate the Russian budget now requires an oil price of $120 per bbl to pay for its vast military expenditures in Ukraine along with socioeconomic projects domestically. For context, Russia needed an oil price of just $40 per bbl to balance its budget before the beginning of the Ukrainian offensive in February 2022.

Domestically, a myriad of unplanned refinery outages in Texas and Louisiana tied to extreme heat have further bolstered refined product prices. NYMEX August RBOB futures advanced more than 18% in July, as U.S. gasoline inventories dropped to about 7% below the five-year average. At expiration, the August RBOB contract fell $0.0268 to $2.9290 per gallon, having retreated from Friday's nine-month $2.9936 intraday high on the spot continuous chart. September futures narrowed its discount to the August contract $0.0335 gallon with a $2.8955-per-gallon settlement.

NYMEX August ULSD futures rallied $0.0323 on the session for a $2.9909-per-gallon expiration, the highest settlement on the spot continuous chart since Jan. 31 when the February contract expired at $3.1823 per gallon. The September ULSD contract increased to $2.2955 gallon, up $0.0357.

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