Oil prices have been on the rise as supply pressures come into focus.

Crude oil prices rose again Tuesday, with WTI topping $110 a barrel as investors switched focus to supply concerns.  
G7 leaders have agreed to explore a Russian oil price cap, while UAE and Saudi output is close to maximum capacity. 
Unrest in Libya and Ecuador also threatens production, as China easing COVID-19 curbs lifts demand hopes. 

Crude oil prices rose again Tuesday, as G7 leaders agreed to explore a Russian oil price cap and supply pressures mounted, while an easing of COVID curbs in China lifted hopes for demand.

WTI crude climbed 1.62% to $11.36, breaking above $110 a barrel, while Brent crude gained 1.86% to $113.07 a barrel, both rising for the fourth session in a row.

In recent weeks, investors have worried about the risk of recession, which could hamper demand for oil, but concerns about supply are now in play, analysts said.

Leaders of the G7 group of developed nations have agreed to explore price caps on imports of Russian oil and gas to try to squeeze Moscow’s funding for its war on Ukraine, Reuters reported. Russia is on track to hit $285 billion in energy revenue this year, a 20% rise on 2021.

Analysts cautioned that Russia might respond to fresh sanctions with retaliatory moves of its own, such as pulling back on flows.

“The impact on global oil supply is not clear: if Russia retaliates, supply could go down, if this enables other third parties to import more Russian oil, supply could go up,” Deutsche Bank strategist Jim Reid said in a daily note. 

Even if the G7 allies announce price caps this week, it will take time for the price cap mechanism to be developed, Reid noted.

Elsewhere, reports that Saudi Arabia and the UAE are pumping oil at close to capacity and other emerging constraints on supply have shifted investors’ focus, analysts said.

OPEC’s two largest oil producers, United Arab Emirates, and Saudi Arabia, are pumping close to capacity and can barely increase output, France’s President Emmanuel Macron was reportedly told.

UAE’s energy minister, Suhail Al Mazrouei, confirmed the output report on Twitter, saying the country was near maximum production capacity based on its current OPEC+ production baseline of 3,168 million barrels of output a day.

“That is probably the last thing the world needs to hear right now, given that Saudi Arabia and the UAE are regarded as the world’s two available swing producers at the moment,” OANDA senior market analyst Jeff Halley said. 

OPEC is due to hold a meeting Wednesday to discuss supply, as members struggle to meet targets. It will get together with non-OPEC members on Thursday.

Another threat to oil production is political unrest in Libya and Ecuador, which could pull about 1.1 million barrels a day from flows already hit by Russian sanctions, according to Halley.

Libya’s National Oil Corporation said Monday it may declare a force majeure on over half of its daily production, while Ecuador said it could halt oil production if vandalism and road blocks of oil wells persist, Bloomberg reported.

While supply is under pressure, demand may rise after China eased COVID-19 restrictions in a major shift to policy. The goverment has halved quarantine times for travelers entering the country, and Shanghai and Beijing said Monday they had no fresh cases of the virus. 

Weekly US inventory data from the American Petroleum Institute is due Tuesday for the week ending June 24. If crude stocks continue to build, the release could have a larger-than-normal impact on prices, analysts at DailyFX said.

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