Oil prices score a weekly gain as traders assess potential for more OPEC+ production cuts

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Oil futures settle higher on Friday, contributing to a gain for the week, as investors weighed prospects for further cuts in crude production when the Organization of the Petroleum Exporting Countries and its allies meet in early June.

Price action

  • West Texas Intermediate crude for July delivery
    CL00,
    +1.32%

    CL.1,
    +1.32%

    CLN23,
    +1.32%

    rose 84 cents, or 1.2%, to settle at $72.67 a barrel on the New York Mercantile Exchange. Prices based on the front-month contract ended 1.4% higher for the week, according to Dow Jones Market Data.

  • July Brent crude
    BRNN23,
    +0.08%
    ,
    the global benchmark, added 69 cents, or 0.9%, to $76.95 a barrel on ICE Futures Europe, for a weekly rise of 1.8%. August Brent
    BRN00,
    +0.17%

    BRNQ23,
    +0.17%
    ,
    the most-active contract, rose 80 cents, or nearly 1.1%, to $76.98 a barrel.

  • Back on Nymex, June gasoline
    RBM23,
    +0.89%

    rose 1.2% to $2.70 a gallon, with prices tacking on 4.9% for the week, while June heating oil
    HOM23,
    +1.31%

    added 1% to $2.37 a gallon, up 0.3% for the week.

  • June natural gas
    NGM23,
    -4.72%

    dropped 5.5% to $2.18 per million British thermal units, on the contract’s expiration day. It marked a weekly tumble of 15.6%. Prices have lost around half their value so far this year.

Market drivers

WTI and Brent crude on Friday both posted gains for a second week in a row.

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Crude had found support earlier this week after Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, warned that oil short sellers should “watch out,” threatening a rerun of the price spike that occurred after OPEC+ output cuts were announced in early April. Analysts took the remarks as a threat that more output cuts may be in store.

However, oil’s advance for the week was “significantly pared after Russia hinted that another OPEC+ supply cut may not be forthcoming,” Han Tan, chief market analyst at Exinity Group, told MarketWatch.

On Thursday, Russia’s deputy prime minister, Alexander Novak, poured cold water on prospects for further reductions in remarks to a Russian newspaper, Reuters reported. OPEC+ ministers are slated to meet June 4 in Vienna.

OPEC+ countries in early April announced around 1.15 million barrels a day in production cuts that took effect at the beginning of this month, while Russia pledged to continue cuts of 500,000 barrels a day through year-end.

Further cuts appear unlikely since the latest round of reductions came into force only at the beginning of May, Barbara Lambrecht, commodity analyst at Commerzank, said in a note.

“Nonetheless, the production cut is not off the table yet, which should lend support to prices for the time being,” she said.

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Lambrecht said that survey-based estimates by news agencies of OPEC production for May are likely to confirm that a reduction of around 1 million barrels a day is being consistently implemented, which means the market is likely already undersupplied.

For now, oil benchmarks are “still caught up in the market’s cross-currents, ranging from optimism surrounding a U.S. debt deal to the prospects of further demand-destroying [Federal Reserve interest] rate hikes,” said Exinity’s Tan.

“Should U.S. lawmakers soon clinch a deal to raise the debt ceiling, that may offer further some measure of relief for oil,” he said. “Barring further OPEC+ intervention on global supplies, oil benchmarks are set to remain primarily gripped by demand-side woes, leaving oil bulls to bide their time” before potentially restoring prices back to the $80-a-barrel handle.

In other news Friday, Baker Hughes
BKR,
+0.29%

reported a fourth straight weekly decline in the number of active U.S. rigs drilling for oil, suggesting a fall ahead for domestic production.

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