Oil futures: Prices climb higher as focus turns to supply-side constraints

Quantum Commodity Intelligence - Crude oil futures Friday were slightly higher as focus switched back to the supply side and potential shortages heading into the northern hemisphere winter.

Front-month September ICE Brent futures were trading at $104.41/barrel (1710 GMT), compared to Thursday's settle of $103.86/b.

At the same time, September NYMEX WTI was trading $96.18/b, versus Thursday's settle of $96.35/b.

Both benchmarks were heading for weekly gains versus last Friday's respective settlements of $101.16/b and $94.57/b for front-line Brent and WTI.

Despite the restart of the Nord Stream 1 gas pipeline, potential energy shortages are set to dominate European policy for the winter months, with most analysts expecting gas shortfalls for the rest of the year.

 "Weaponizing gas flows is a far less costly choice for the Kremlin, with gas exports only generating around 15% of Russian hydrocarbon revenue. Putin will likely seek to keep Europe in a state of perpetual panic by deploying a rolling cut off strategy," said RBC in its latest investor note.

Oil supply shortages were also seen as an issue with the US this week, confirming it would work in coordination with Europe to impose a price cap on Russian exports – a move the Kremlin has said will lead to a price spike as it will not export oil at a loss.

OPEC has consistently said it will not have the volumes to make up any further Russian shortfalls, with producers already at or near capacity.

JP Morgan said the OPEC producer group has approximately 3 million barrels per day of spare capacity, while Saudi Arabia is unlikely to change its current production path.

"JPM does not expect Saudi Arabia to change course on its production strategy given its preference to keep its 'powder dry' in the event there are further production outages," said the bank, referencing the North Atlantic hurricane season or Russia potentially weaponizing its crude.

So far, the Gulf of Mexico is set to complete a hurricane-free July with no signs of storm activity in the North Atlantic heading into the final week of the month.

On the downside, rising Covid cases in China and broader economic slowdown fears continued to weigh on markets, pegging back the price rebound during Asia trading hours.

Prices also eased after Libya said oil output would reach full production in 10 days.