Oil futures finished higher on Friday and logged a fourth straight weekly gain after the International Energy Agency warned that OPEC+ production cuts would leave the crude market with a larger and earlier deficit this year than previously expected.
Worries about high inflation and its impact on energy demand have also eased, analysts said.
Price action
- West Texas Intermediate crude for May delivery CL00, +0.63% CL.1, +0.63% CLK23, +0.63% rose 36 cents, or 0.4%, to settle at $82.52 a barrel on the New York Mercantile Exchange, with the U.S. benchmark registering weekly rise of 2.3%, based on the front-month contract.
- June Brent crude BRN00, +0.37% BRNM23, +0.37%, the global benchmark, rose 22 cents, or 0.3%, to $86.31 a barrel on ICE Futures Europe, for a 1.4% weekly rise. Brent and WTI marked a fourth straight weekly rise.
- Back on Nymex, May gasoline RBK23, +0.11% added nearly 0.2% to $2.84 a gallon, posting a weekly rise of 0.8%. May heating oil HOK23, -0.95% settled at at $2.64 a gallon, down 1.3% for the session and down 0.8% for the week.
- May natural gas NGK23, +4.93% climbed by 5.3% to settle at $2.11 per million British thermal units after an earlier drop below the $2 level. For the week, it gained 5.1%.
Market drivers
High inflation and a hawkish Federal Reserve had “spoilt the party for oil producers, but the oilmen are now back and the party is in full swing,” said Manish Raj, managing director at Velandera Energy Partners.
“With the peak inflation appearing in the rearview mirror, traders can shake off the macro risk that had underpinned the oil trade for months,” he told MarketWatch.
Meanwhile, the report from the IEA “suggests that China doesn’t just have an ordinary demand growth — this is a ‘demand surge,’” Raj said.
“The report from the IEA “suggests that China doesn’t just have an ordinary demand growth — this is a ‘demand surge.’” ”
— Manish Raj, Velandera Energy Partners
In its monthly report, the Paris-based IEA, which serves as an energy watchdog for major economies, said it expects the gap in the global oil market between the availability of crude and rebounding demand to hit 2 million barrels a day by the third quarter.
See: Saudi-led oil cuts risk worsening inflation and harming global economic growth, IEA says
“With China breaking the shackles of COVID lockdowns, the [IEA] believes there will be tremendous growth in air travel,” StoneX’s Kansas City energy team, lead by Alex Hodes, wrote in Friday’s newsletter. “They also warned that the OPEC output cuts could exacerbate an oil supply deficit and hurt consumers.”
Also read: Why sugar and orange juice lead an impressive rally in ‘soft’ commodities
Saudi Arabia and other major oil producers earlier this month announced plans to cut production by 1.16 million barrels per day beginning in May through the end of 2023. Meanwhile, Russia said it would extend a March cut of 500,000 barrels a day through year-end. The moves followed another major cut announced by OPEC+ — made up of the Organization of the Petroleum Exporting Countries and its Russia-led allies — in October.
Still, analysts at Goldman Sachs, in a note dated Friday, said they see the report as “roughly neutral for oil prices as the bullish analysis of U.S. supply constraints and the large fall in March preliminary [Organization for Economic Cooperation and Development] commercial stocks roughly offset the slight downgrade to demand and the slight upgrade to non-OPEC supply.”
See: Baker Hughes data show a third straight weekly fall in active U.S. oil-drilling rigs
Overall, WTI oil prices have rallied toward the top of a $66 to $84 recent trading range and paused near $82.50, Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch.
“At this point, it’s unclear if it has run out of steam or is preparing for another move upward. Which direction it breaks out from the current $80 to $84 range may settle the matter,” he said.
“Oil continues generally to respond favorably to the support provided by OPEC+ earlier this month when they cut production,” Cieszynski added. “The demand side remains in question with economic data out of the U.S. quite mixed.”
