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Crude oil prices posted weekly gains after registering back-to-back losses, as easing perceptions of geopolitical risk took some momentum out of the market while an unexpectedly large draw of U.S. crude inventories was supportive.
A strong dollar and resilient inflation data from the U.S. this week dampened hopes that the Federal Reserve would cut interest rates any time soon, giving oil prices a ceiling.
“Some geopolitical risk premium has been erased from the market, and now the market is looking forward to supply and demand dynamics in the upcoming quarter, which should still be relatively tight,” StoneX’s energy team led by Alex Hodes says.
Recent economic data have “flashed signs of stagflation potentially gripping the economy,” with GDP rising at a meager 1.6% annual pace during Q1 and inflation data coming in hotter than some anticipated, Sevens Report Research co-editor Tyler Richey tells Marketwatch.
But with the oil futures market remaining in backwardation – where prices for oil for delivery in the near future are higher than those for later deliveries – demand looks strong enough to still keep pressure on supply, “creating an imbalance in the market that has persisted much longer than most traders anticipated it would,” Richey says.
Front-month Nymex crude (CL1:COM) for June delivery ended the week +1.9% to $83.85/bbl, and front-month June Brent crude (CO1:COM) settled +2.5% to $89.50/bbl, snapping a two-week losing streak for both benchmarks.
Also, U.S. natural gas fell for the third straight week, with the May front-month Nymex contract (NG1:COM) finishing -7.8% to $1.614/MMBtu.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)
In a bearish take on crude oil, Citi analysts said this week the market’s focus has shifted to increasingly bearish near-term fundamentals, noting global oil inventory increases at nearly 1M bbl/day in Q1 are stretching into April, while better than expected oil demand anticipated earlier this year is beginning to moderate.
Citi said the current time of year should see a “decent growth trend” in gasoline demand, but noted demand in the most recently ended week excluding the pandemic years was the lowest April reading since 2014.
The bank said it expects Brent oil prices to average $86/bbl in Q2, with “loosening fundamentals” eventually pressuring prices lower.
Citi also downplayed any impact from tougher U.S. sanctions on Iran or Venezuela, believing the Biden administration will not want to tighten the oil market in a presidential election year.
The energy sector, as indicated by the Energy Select Sector SPDR ETF (NYSEARCA:XLE), finished +0.1%.
Source: Barchart.com
