Oil Prices Rise 1% on Summer Demand Prospects, Middle East Tensions

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NEW YORK, June 24 (Reuters)** – Oil prices climbed about 1% on Monday, driven by expectations of strong summer driving demand and rising concerns about supply disruptions due to Middle East tensions and drone attacks on Russian refineries. An easing U.S. dollar also contributed to the increase in crude prices.

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Brent futures for August delivery settled at $86.01 a barrel, up 77 cents or 0.9%. U.S. crude settled at $81.63 a barrel, gaining 90 cents or 1.1%. Both benchmarks advanced about 3% last week, marking their second consecutive weekly upswing.

“The main reason behind the price strength is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

After a significant decline in U.S. crude and gasoline inventories last week, traders are now waiting for the report due on Wednesday to see if it provides further evidence of sustained strong gasoline demand, said Bob Yawger, director of energy futures at Mizuho in New York. “It has to sustain for this positive narrative to continue in the market,” Yawger added, noting that the growing electric vehicle market is eroding gasoline’s share of the transportation market.

However, Jim Ritterbusch of Ritterbusch and Associates cautioned that the gasoline-led rally could taper off in the coming weeks as inflation impacts summer travel spending. “We still expect a significant falloff in demand next month, especially with the recent uplift in retail pricing further curtailing vacation plans,” Ritterbusch said.

Geopolitical risks in the Middle East and increased Ukrainian drone attacks on Russian refineries also supported oil prices. EU countries agreed on Monday on a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) in the EU for further shipment to third countries.

An easing U.S. dollar made dollar-denominated commodities such as oil more attractive to buyers using other currencies. The dollar weakened from a near eight-week high as traders anticipated possible intervention to support the yen after the Japanese currency approached the 160 per dollar level.

The dollar index, which measures the greenback’s performance against six major currencies, had climbed on Friday and was up slightly on Monday after data showed U.S. business activity at a 26-month high in June.

In Ecuador, state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for export after the shutdown of a pipeline and oil wells due to heavy rain, sources said on Friday.

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