Traders Hope G7 Provides Catalyst for Next Move

Will the G7 push the oil producers to increase output to stave off global recession?

Traders were monitoring the events at the Group of Seven (G7) nations in Germany for potential announcements that could affect the current supply tightness.

Traders are expecting OPEC and its allies, known as OPEC+, to stick with its plan for accelerated oil output increases in August when it meets on June 30. In early July, President Biden is scheduled to visit Saudi Arabia. The trip is likely to make headlines, but it would come as a surprise if Biden were able to influence Saudi oil policy.

The more pressing news currently controlling the price action are growing concerns over the potential for a global recession. Helping to save the market from an even bigger loss last week, however, was a weaker U.S. Dollar and a rebound in U.S. stock markets. How long will a weak USD remain.

What to expect.

The leaders of the Group of Seven continue to discuss ways to tackle rising energy prices, with measures mentioned including a possible price cap on Russian crude and oil products exports, which could further disrupt a very tight global market.

“However, it would likely take some time to come to an agreement. It would require the EU to renegotiate its last round of sanctions, and some member countries may be reluctant to do so, given how long it originally took EU countries to finalize its Russian oil ban,” said analysts ING, in a note.

The group is also expected to consider the possibility of reviving the Iran nuclear talks after the European Union's foreign policy chief met senior officials in Tehran to try to unblock the stalled negotiations, potentially allowing the resumption of Iranian crude onto the export market.

“Given that talks have been on and off for the last year or so, we expect that discussions will likely be drawn out, and so we are assuming that the supply of Iranian oil will only start increasing in early 2023,” ING added.

Although the addition of Iranian oil could help ease the overall tightness of the market, this could be balanced by the difficulties Libya is having with its output as it grapples with protests that are forcing many oil fields and ports to shut down.

The country’s state oil company said Monday it may suspend exports from the Gulf of Sirte, which contains many of the OPEC member’s main ports, in the next three days amid a worsening political crisis.

The Organization of the Petroleum Exporting Countries and their allies including Russia, known as OPEC+, are set to meet later this week, but additional output from this source is unlikely with the group expected to stick to the plan announced last month.

The crude market recorded its second consecutive losing week last week on concerns the aggressive tightening a number of central banks, the Federal Reserve in particular, are undertaking to curb inflation will severely limit global economic activity.