Oil prices set to extend gains for third consecutive week
Crude oil prices are about to post a third weekly gain boosted by OPEC+’s unexpected decision to reduce its combined output by another 1.16 million bpd, despite continued concern about a global slowdown.
Oil prices surged on Monday, following the Sunday declaration of the oil production group and later in the week steadied amid fresh U.S. and Chinese economic data that suggested weaker post-pandemic growth.
In the U.S., the latest weekly jobless data revision showed a higher number of initial jobless claims than previously estimated and growth in the service sector disappointed. In China, the Caixin PMI reading for March suggested a deceleration of post-pandemic growth.
These negative developments served to put a cap on oil prices and after Monday, prices were little changed, despite additional support from yet another U.S. inventory draw as estimated by the Energy Information Administration.
“Demand destruction as function of the threat of recession is greater than the cut by OPEC+,” Robert Yawger, Mizuho Securities energy futures director, told Reuters.
“Physical OPEC+ crude oil cuts will clash with monetary central bank hikes designed to rein in demand, posing macro risks,” Bank of America analyst Francisco Blanch said in a note to clients, as quoted by Bloomberg. “Net, we stay constructive.”
Bloomberg noted that oil has gained some 26% since its mid-March trough, prompted by the string of bank collapses, with Brent crude above $85 and West Texas Intermediate topping $80 per barrel.
“The oil market’s bullish momentum may have paused, but upside potential remains given the tightening supply backdrop,” PVM broker Stephen Brennock told Reuters.
This potential could strengthen further as Saudi Arabia signaled its confidence that demand will remain resilient despite economic growth worries by raising its official selling prices for Asian buyers. Asia is Saudi Arabia’s biggest export market for crude oil.
