Oil advances as Opec+ supply boost vies with geopolitical risk
[SINGAPORE] Oil gained as a third straight production increase by the Organization of the Petroleum Exporting Countries and its allies (Opec+) vied with heightened geopolitical risk in Ukraine and Iran.
Brent crude for August rose as much as 2.1 per cent to US$64.09 a barrel, after losing 2.2 per cent last week, while West Texas Intermediate was below US$62. The Opec+ agreed on Saturday to add 411,000 barrels a day of supply in July, according to a statement.
The decision defied reports late last week that the group was considering accelerating the return of shuttered-in production by an even larger amount, which had damped prices on Friday (May 30). The quota boost matched those scheduled for May and June, and was in line with expectations in a Bloomberg survey of 32 traders and analysts.
Escalating geopolitical concerns helped support prices. Ukraine staged a dramatic series of strikes across Russia, deploying drones hidden in trucks deep inside the country to hit strategic airfields as far away as eastern Siberia.
Meanwhile, Moscow launched one of its longest drone and missile attacks against Kyiv, escalating tensions ahead of crucial peace talks this week.
Iran manufactured a record volume of uranium enriched just below the levels needed for nuclear weapons, The International Atomic Energy Agency said. The Islamic Republic criticised the report, which complicates efforts to negotiate a peaceful resolution to international concerns over the Islamic Republic's atomic ambitions.
Crude remains almost 15 per cent lower this year, pressured by an ongoing trade war between the US and China, as well as the abandoning by Opec+ of their former strategy of defending higher prices by curbing output.
Opec+ officials said the quota boost reflected Saudi Arabia's desire to punish over-producing members such as Kazakhstan and Iraq. Some members – including Russia, Algeria and Oman – had wanted a pause in the increases, delegates said. The group next meets on Jul 6 to discuss output levels for August. BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
30 minutes ago
- Straits Times
Honda supplier rethinks China relationship as trade war bites
TOKYO – As the US-China trade war expands into the auto, steel and rare earths sectors, few companies are feeling the pressure more than top Japanese car parts supplier Daido Steel. The supplier to Honda Motor and other major marques is facing a trio of headwinds: a 50 per cent tariff on US imports of steel, a 25 per cent duty on foreign-made cars and a levy on parts, and China's tightening of exports of rare earths – minerals critical to make magnets for car motors. 'They've started putting up walls,' chief executive officer Tetsuya Shimizu said in an interview at Daido Steel's headquarters in Nagoya. 'This will have a massive impact on the stability of the global economy.' It's also having major implications for the sprawling network of specialty manufacturers that are critical to the global automotive industry and now find themselves stuck between feuding superpowers. For Daido Steel, the trade war has meant renewing a push to build rare earth supply routes outside of China, which accounts for almost 70 per cent of mined material and about 90 per cent of global refining of the metals. Some new routes are already starting to form, mainly from Australia, and Mr Shimizu said there's potential in the United States, Canada and Brazil. But progress has been slow due to high costs and low supply, he said, underscoring the immense challenge facing the world's efforts to wean from their dependence on China. Daido's struggles also signal the true toll of the trade war on the auto sector will be magnitudes more than the billions of dollars forecast by top carmakers including Ford Motor and Toyota Motor. And the constant of roller coaster of escalating, then de-escalating, tensions has left companies scrambling to maintain business ties under a cloud of uncertainty. When Mr Trump initially imposed 25 per cent tariffs on steel imports in March, Mr Shimizu was able to reassure clients in the US that business could continue as normal. Customers value Daido Steel's products enough to wait months for shipments to arrive and, if they could buy comparable goods domestically in the US, 'they'd already be doing it,' he said. But his confidence vanished earlier this month when duties doubled. 'At some point it stops making sense as a business,' Mr Shimizu said. 'Asking customers to pare back orders or lean on inventory or lower production could negatively impact the entire enterprise, but that risk might be unavoidable.' Daido Steel earns most of its money supplying products to Japan's automakers – many of which sell cars in the US that are manufactured or assembled elsewhere. Collectively, the top Japanese auto brands are bracing for a US$19 billion (S$24.5 billion) hit from tariffs. Several Japanese carmakers have already started to shift or lower US production leaving suppliers like Daido Steel at the mercy of their customers' rapidly changing plans. In May, the steelmaker withheld full-year profit guidance for the current fiscal year and forecast a 34 per cent drop in first-half net income. 'It comes down to how carmakers respond,' said Mikine Kishi, general manager of the company's corporate planning department. 'If they decide they're not going to manufacture in Japan anymore, or that they'll lower total production volumes, that would have an extremely big impact on our business.' The US and China appear to have reached a detente, and Mr Trump has signed an order that prevents multiple tariffs from piling on top of each other. But rare earths are proving to be a particular sticking point in trade negotiations. China's export controls on seven individual elements, and magnets that contain even tiny amounts of them, left sectors from auto to defense urgently trying to find workarounds. Uncertainty over supply lingers, though Beijing said this month it's accelerating the review of rare earth export license applications and has approved some requests. Daido Steel had a head start in diversifying its supply chain. Back in 2010, China briefly imposed a de facto ban on exports of rare earths to Japan following a maritime dispute, kick-starting industry efforts to break their reliance on the nation. Success has been limited though: Japan depends on China for 60 per cent of its rare earths supply, down from 80 per cent to 90 per cent. As well as seeking alternative supplies, Daido Steel focused on new technology to use fewer rare earths. One of the company's key products is a neodymium magnet that doesn't include heavy rare earths including dysprosium or terbium, which has been used by Honda since 2016. Daido Steel also supplies magnets indirectly to automakers by way of Aisin Corp. and Denso Corp. – two of Japan's biggest suppliers. Daido Steel wants to expand production and industrial use of those magnets, betting that customers will increasingly look for non-Chinese supply. It also plans to build a manufacturing plant in the US, though Mr Shimizu didn't specify when or where that will happen. It would be a major disappointment if the US should slide into authoritarianism, Mr Shimizu said, because that would mean the global economy will eventually have to revolve around America. 'I'm not sure there's enough time for supply chains to transition if the goal really is to produce everything in America for America,' he said. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
Business Times
31 minutes ago
- Business Times
Oil prices surge more than 4% in early Asian trade
[TOKYO] Oil prices surged in early trade on Monday, after the United States joined Israel's campaign against Tehran's atomic programme by bombing Iranian nuclear sites. Brent and the main US crude contract WTI both jumped more than four per cent to hit their highest price since January. They then pared gains. At 2335 GMT on Sunday, Brent was up 2.4 per cent up at US$78.83 per barrel and WTI was up 2.5 per cent at US$75.66. AFP
Straits Times
an hour ago
- Straits Times
Oil surges as Trump's attack on Iran ramps up risks to supplies
SYDNEY – Oil surged when markets opened on June 23 after the US struck Iran's three main nuclear sites and threatened further attacks, exacerbating a crisis in the Middle East and stoking concerns that energy supplies from the region could be disrupted. Global benchmark Brent rallied as much as 5.7 per cent to US$81.40 a barrel, extending three weeks of gains. The Middle East accounts for about a third of global crude output, and higher, sustained prices would boost inflationary pressur In a weekend address, US President Donald Trump said air attacks had 'obliterated' the trio of targets, and threatened more military action if Iran didn't make peace. In its initial reply, Tehran warned the strikes would trigger 'everlasting consequences.' The US assault – which targeted sites at Fordow, Natanz, and Isfahan – dramatically raises the stakes in the confrontation and increases the premium that traders are pricing into the global energy market. Still, the extent of the gains will hinge on how Tehran opts to respond to the US moves. The global oil market has been gripped by the crisis since Israel attacked Iran more than a week ago, with futures pushing higher, options volumes spiking along with freight rates, and the futures curve shifting to reflect tensions about tighter near-term supplies. 'This could set us on a path toward US$100 oil, if Iran responds as they have previously threatened to,' said Saul Kavonic, an energy analyst at MST Marquee. 'This US attack could see a conflagration of the conflict.' There are multiple, overlapping risks for physical crude flows. The biggest centres on the Strait of Hormuz, should Tehran seek to retaliate by attempting to close the chokepoint. About a fifth of the world's crude output passes through the narrow waterway at the entrance to the Persian Gulf. Iran's parliament has called for the closure of the strait, according to state-run TV. Such a move, however, could not proceed though without the explicit approval of Supreme Leader Ayatollah Ali Khamenei. Rival suppliers In addition, Tehran could opt to target crude infrastructure in rival suppliers in the Middle East, such as fellow Opec+ producers including Saudi Arabia, Iraq or the United Arab Emirates. After the US attack, both Riyadh and Baghdad expressed concern about the targeting of the nuclear facilities. Elsewhere, Tehran could orchestrate attacks on ships on the other side of the Arabian peninsula in the Red Sea, encouraging Yemen-based Houthi rebels to harass vessels. After the US attacks, the group threatened retaliation. If the hostilities escalate, Tehran's own oil-producing capabilities could be targeted, including the key export hub at Kharg Island. Such a move, however, could send crude prices soaring, an outcome that America might want to avoid. So far, Kharg Island has been spared, with satellite imagery pointing to a drive by Iran to expedite its exports of oil. The crisis will also throw a spotlight onto the Organization of Petroleum Exporting Countries, and its allies including Russia. In recent months, Opec+ has been relaxing supply curbs at a rapid clip seeking to regain market share, and yet members still have substantial idled capacity that could be reactivated. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
