Oil heads higher, but looks to post a 5% weekly tumble on demand worries

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Oil futures headed higher on Friday, but remain on track to post a weekly loss for the first in five weeks as worries about the economic outlook stoked demand worries.

Price action
  • West Texas Intermediate crude for June delivery
    CL.1,
    +0.45%

    CL00,
    +0.45%

    CLM23,
    +0.45%

    climbed by 73 cents, or 0.9%, to $78.10 a barrel on the New York Mercantile Exchange, leaving the front-month contract for U.S. benchmark on track for a 5.3% weekly fall.

  • June Brent crude
    BRN00,
    +0.42%

    BRNM23,
    +0.42%
    ,
    the global benchmark, was up 69 cents, or 0.9%, at $81.79 a barrel on ICE Futures Europe, leaving it down 5.2% for the week.

  • Back on Nymex, May gasoline
    RBK23,
    +0.45%

    rose 1.7% to $2.631 a gallon, while May heating oil
    HOK23,
    -0.10%

    edged up 0.6% to $2.5096 a gallon.

  • May natural gas
    NGK23,
    -1.56%

    fell 0.5% to $2.241 per million British thermal units, with prices looking at a weekly rise of around 6%.

Market drivers

Both WTI and Brent posted their lowest closes of the month on Thursday, giving back a chunk of the gains scored in early April after Saudi Arabia and its OPEC+ allies announced cuts of around 1.15 million barrels a day beginning in May and running through the end of the year, while Russia said it would extend cuts of 500,000 barrels a day through year-end.

On Thursday, worries about consumer demand linked to a “deteriorating economic backdrop and still-hawkish” Federal Reserve, were on the rise, analysts at Sevens Report Research wrote in Friday’s newsletter.

“Between the sour earnings and guidance released by several major U.S. corporations this week and the downbeat economic data” in the U.S. Thursday, there was “no real positive reason to step in and defend the key April technical support level of $79a barrel for WTI, they said.

Overall, analysts said worries about ongoing monetary policy tightening by the Fed and other major central banks sparking a sharp global economic slowdown were partly to blame for oil’s losses this week. Those factors offset previous optimism over China’s economic recovery following the lifting of strict COVID-19 curbs in late 2022.

Market Extra: ‘Deep, lingering, persistent’ skepticism over China’s growth potential is keeping global financial markets from embracing its reopening

In addition to skepticism over Chinese demand, reports that Russian crude shipments continue despite sanctions and embargoes have also weighed on oil prices, said Carsten Fritsch, commodity analyst at Commerzbank, in a Friday note.

Also read: Oil prices crashed below zero 3 years ago, with the spotlight back on demand and volatility

Reuters on Thursday reported that oil loadings from Russia’s western ports in April were on track to be the highest since 2019, at more than 2.4 million barrels a day.

Russia also said that its President Vladimir Putin had a telephone conversation with the Crown Prince and Chairman of the Council of Ministers of Saudi Arabia Mohammed bin Salman Al Saud, focused expanding “mutually beneficial ties in the trade, economic, investment and energy fields,” according to a Google translation of the news.

“In the short term, the orientation phase against the backdrop of mixed economic prospects in the Western industrialized countries could persist: after all, the market is (still) amply supplied,” Fritsch wrote.

“In our opinion, however, the market is too complacent in the medium term: when production in Saudi Arabia and a number of other OPEC countries is scaled back from May, the market will be noticeably undersupplied again,” he said.

Daily oil supply in the second half of 2023 is likely to be around 2 million barrels shy of demand, he said, which means commercial stocks in developed countries, which have only just returned to “normal” levels will likely see a renewed decline.

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