Myra P. Saefong and William Watts, MarketWatch
SAN FRANCISCO/NEW YORK
Energiesnet.com 04 24 2023
Oil futures finished higher on Monday, finding support from some signs of demand strength and tighter inventories, after worries about the economic outlook prompted prices for U.S. and global benchmark crude to lose more than 5% last week.
Price action
- West Texas Intermediate crude for June delivery CL00, -0.60% CL.1, -0.60% CLM23, -0.60% rose 89 cents, or 1.1%, to settle at $78.76 a barrel on the New York Mercantile Exchange.
- June Brent crude BRNM23, -0.59%, the global benchmark, climbed $1.07, or 1.3%, at $82.73 a barrel on ICE Futures Europe. July Brent BRN00, -0.53% BRNN23, -0.53%, the most actively traded contract, added $1.08, or 1.3%, at $82.54 a barrel.
- Back on Nymex, May gasoline RBK23, -0.03% climbed 1.2% to $2.63 a gallon.
- May heating oil HOK23, -0.32% rose 1.7% at $2.53 a gallon.
- May natural gas NGK23, -2.38% added 1.8% to $2.27 per million British thermal units.
Market drivers
Both Brent and WTI dropped more than 5% last week, ending a streak of four consecutive weekly gains as crude gave back a chunk of the rally scored earlier this month after Saudi Arabia and other OPEC+ countries announced production cuts of around 1.15 million barrels a day beginning in May and running through year-end. That was accompanied by a pledge by Russia to extend a 500,000 barrel-a-day cut to the end of the year.
The output cut was a “bullish development,” analysts at Sevens Report Research wrote in Monday’s newsletter. “But OPEC+ is, by necessity, one of the better economic forecasting bodies, and they wouldn’t cut production if they expected a solid economic backdrop” in the second half of the year.
“OPEC+ is, by necessity, one of the better economic forecasting bodies, and they wouldn’t cut production if they expected a solid economic backdrop” in the second half of the year.— Sevens Report Research’s Monday newsletter
Still, Tyler Richey, co-editor at Sevens Report Research, told MarketWatch Monday that the halt of Northern Iraqi oil exports via pipeline to Turkish ports, amounting to 450,000 barrels a day, has been a “fundamental tailwind for energy prices.”
On Monday, it was reported that there have been further delays in the negotiations between the Iraqi government, the Kurdistan Regional government, and Turkey’s government “that are critical to getting those northern Iraqi oil flows restarted,” he said. The reduced Iraqi oil exports, along with the unexpected OPEC+ production cuts, are “acting as dual supply-side tailwinds for the oil market.”
Still, longer term, recession worries and the subsequent drop in consumer demand that typically occurs during economic contraction periods is a “lingering headwind for the oil market…and that is likely to cap any rallies below the $100 a barrel market,” Richey said.
Also see: Gasoline prices may have already reached a summer-season peak
Meanwhile, in a Sunday note, Michael Tran, global energy strategist at RBC Capital Market, pointed out that there are signs of “green shoots” in the physical crude market after months of “sloppy” action.
Physical premiums for a range of North Sea grades picked up meaningfully over the past week, along with West African crude, he said.
Those physical markers are likely to tighten further in coming weeks, he said, driven by three tailwinds.
First, the North Sea’s Buzzard Oil Field is slated to begin 12 days of planned maintenance on April 27. “This is important given that Buzzard is the largest stream making up Forties, and Forties is the largest physical stream used to price Dated Brent,” Tran wrote. Forties is a light, low-sulfur North Sea crude.
“Second, French refineries have restarted following weeks of strikes. Lastly, Chinese crude imports have ramped and have been registering near record highs,” he said. “While the medium and heavy complex has tightened as China ramped crude imports, further tightening of the global physical market should support light, sweets.”
marketwatcch 04 24 2023
