Crude spot prices rose on average month-on-month (m-o-m) in July driven by higher futures prices and stronger physical crude supply/demand fundamentals, Opec said in a report.
Robust buying in the spot market including for near-term loading volumes for July and August trading cycles, concurrent with higher refinery intakes in July and firm demand from Asian buyers supported spot prices, Opec’s August monthly report showed.
The Opec Reference Basket (ORB) value averaged higher m-o-m in July. This came amid firm gains in related crude benchmarks and higher official selling prices (OSP) of all medium and heavy components exported to Asia, Europe and the US markets.
In July, the ORB increased by $5.87, or 7.8%, to settle at $81.06/barrel.
Crude oil futures prices bounced back in July from low levels recorded in June, as selling pressure in futures markets ceased and market sentiment turned optimistic about improving global oil market fundamentals in the second half of 2023.
Moreover, the expectations that central banks were approaching the end of their monetary tightening cycles, the sharp decline of the US dollar in the first half of July and expectations of economic stimulus in China added to the positive sentiment in financial markets.
The ICE Brent front-month averaged $5.18, or 6.9%, higher in July to stand at $80.16/barrel, and NYMEX WTI rose by $5.76, or 8.2%, to average $76.03/b.
DME Oman crude oil futures prices increased m-o-m in July by $6.25, or 8.3%, to settle at $81.16/b.
Hedge funds and other money managers recovered a large part of their combined futures and options net long positions in July, after significantly cutting their bullish positions in May and June, mirroring an improved market sentiment and a change in speculators' strategy, Opec noted.
Money managers rush to cover short positions built in the previous month, which contributed to pushing oil futures prices higher. The rise of net long positions was mainly due to the large drop in short positions.
The crude market structure strengthened in July on an improving supply/demand balance outlook and signs of easing supply overhang for prompt loading volumes amid robust demand from refiners.
Higher global refinery intakes boosted purchases of crude for prompt loading volume.
The large decline in US crude oil stocks last month contributed to a strengthening of the structure of NYMEX WTI with the nearest month-spreads flipping into backwardation from contango in June.
The sharp rise in bullish positions in the futures markets added support to prompt-month prices compared to forward-month contracts.
The prospect of a tighter sour market and sustained supply availability of light sweet crude, including from the US, led to the further narrowing of the spread between the value of sweet and sour crude in almost all regions, although they widened slightly in Asia.
Further strengthening of high sulphur fuel oil supported the value of heavy sour crude, while a sharp drop in the value of naphtha cracks weighed on the value of light sweet crude, which resulted in further narrowing of the naphtha-HSFO (high-sulphur fuel oil) spread to deep discount, Opec said.