Oil edges up on supply worries, G7 pledge to enforce Russian price caps

Oil prices edged up on Monday on a softer dollar and supply cuts from Canada and OPEC+ producers, while investors waited to see if a pledge by the Group of Seven (G7) nations to strictly enforce price caps on Russian energy would impact exports.

Brent crude futures climbed 14 cents, or 0.2 per cent, to $75.72 a barrel by 0018 GMT while U.S. West Texas Intermediate crude for July delivery, the more actively traded contract, was at $71.84 a barrel, up 15 cents, or 0.2 per cent.

The June WTI contract, which expires later on Monday, rose 5 cents to $71.60 a barrel.

The dollar came off a two-month top against a basket of major peers as investors expect the Federal Reserve to keep rates unchanged at its June meeting. A softer greenback makes dollar-denominated commodities more attractive to investors.

Last week, both oil benchmarks gained about 2 per cent, first weekly gain in five, after wildfires shut in large amounts of crude supply in Alberta, Canada.

Voluntary OPEC+ production cuts have also taken effect from May, analysts from Goldman Sachs and JP Morgan said.

"Latest export data suggest that the eight OPEC+ producers are delivering on their pledges to cut supply," JP Morgan analyst said in a note.

Total exports of crude and oil products from the group plunged by 1.7 million barrels per day (bpd) by May 16, they added.

"Our view remains that Russia has cut its oil production by 500,000 bpd from February levels and its exports will likely align with production by late May," JP Morgan said.

CMC Markets analyst Tina Teng said stricter enforcement of sanctions against Russia may be bullish for oil prices.

On Saturday, the G7 nations pledged at its annual leaders' meeting to enhance efforts to counter Russia's evasion of the caps "while avoiding spillover effects and maintaining global energy supply", but did not provide details.

Such enhancements are not expected to change the supply situation for crude and oil products, the International Energy Agency's (IEA) Executive Director Fatih Birol said, adding that the agency was sticking to its analysis for now.

In its latest monthly report, the IEA warned of a looming shortage in the second half when demand is expected to eclipse supply by almost 2 million bpd.

On Monday, the Dangote Petroleum Refinery, a new facility in Nigeria aimed at ending the country's recurring fuel shortages, will be commissioned but a lack of crude supply poses a major risk to it achieving full production, analysts said.

In the U.S., the oil rig count fell by 11 to 575 in the week to May 19, the biggest weekly drop since September 2021, energy services firm Baker Hughes Co (BKR.O) said.

"A slowdown in U.S. drilling activity is a concern for the oil market, which is expected to see a sizeable deficit over the second half of this year," ING analysts said in a note.