WTI backs off from three-month highs near $121, but still well supported amid recent bullish developments

• WTI hit fresh three-month highs near $121 earlier in the session, but has since pulled back to the $118s.
• Oil prices were initially boosted on Monday amid a Saudi hike, China lockdown easing and following last week’s OPEC+ meeting.

Having at one point come within a whisker of hitting the $121 per barrel mark earlier in the day and, in doing, having hit fresh three-month highs, front-month WTI futures have waned in recent trade. WTI was last trading in the $118s and down about $1.50 on the session, with the boost from this weekend’s news about the Saudis upping their Official Selling Price (OSP) to large Asian customers having now faded.

But WTI is still trading more than $7.0 higher versus last week’s lows after OPEC+’s decision to increase the pace of output quota hikes in July and August to 648K barrels per month from 432K. That decision failed to weigh on prices in a lasting way given that the larger output quotas were spread evenly amongst OPEC+ members, many of whom will be unable to substantially lift output in practice (including Russia, who continue to face harsh Western sanctions).

JP Morgan said in a note on Monday that they only think OPEC+ will lift output by a net 160-170K barrels per day in July and August, far below the target announced by the cartel. More broadly, expectations for crude oil markets to remain very tight should keep WTI underpinned in the upper $110s and near $120 for now, especially in light of further announcements over the weekend that major Chinese cities will continue to roll back lockdowns, a boost to demand in the world’s second-largest oil-consuming nation.