Oil prices saw a modest increase following a significant drop of nearly 3% on Friday, driven by two key factors: President Joe Biden’s unexpected decision to forgo reelection and the threat of wildfires impacting oil production in Canada. The global benchmark Brent crude edged towards $83 per barrel, rebounding from its steepest one-day decline since early June, while West Texas Intermediate approached $81.
Biden’s announcement to withdraw from the 2024 presidential race, coupled with his endorsement of Vice President Kamala Harris, came amid concerns about his potential to defeat former President Donald Trump. This political development led to a weakening of the US dollar during Asian trading hours, providing a boost to commodities priced in the currency.
In Canada, intense heat has exacerbated wildfires across the Alberta oil fields, with an estimated 348,000 barrels per day of production now at risk, according to data from Alberta Wildfire and the Alberta Energy Regulator.
Year-to-date, oil prices have been bolstered by OPEC+ production cuts, contributing to a decrease in global stockpiles as summer progresses in the northern hemisphere. Geopolitical tensions have also played a role, with conflicts such as Israel’s ongoing war with Hamas and skirmishes involving Iran-backed groups, including the Houthis from Yemen, raising concerns over potential disruptions to supply.
Over the weekend, Israel conducted airstrikes on targets around the Houthi-controlled Red Sea port of Hodeidah in response to a drone attack on Tel Aviv. These strikes, aimed at various facilities including fuel-storage sites, were depicted in footage from Houthi-controlled media showing significant damage and flames at the targeted locations.
Market indicators suggest a tightening of oil supply in the near term. Brent crude’s prompt spread, reflecting the difference between its two nearest contracts, has increased to over $1 per barrel in backwardation—a bullish signal. This contrasts with a gap of 76 cents observed two weeks ago.
