West Texas Intermediate is heading for its best streak of weekly gains since mid-February.
Of Bloomberg
Released May 20, 2022
Oil appears to have posted a fourth straight weekly gain as product markets remained tight amid strong demand, eclipsing worries of an economic slowdown that have rocked financial markets.
West Texas Intermediate futures traded near $113 a barrel and are heading for their best weekly gains since mid-February. Rising demand for motor fuel and shrinking inventories ahead of the summer driving season underscored a fundamentally tight oil market, even as broader economic fears rocked stock markets. US. Retail prices for gasoline and diesel rose to record levels.
“There remains a disconnect between the risk financial markets associate with raw financial assets and the physical market trying to digest SPR releases to meet product demand,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “This dichotomy keeps markets fragmented and volatile – it could be a cruel summer for energy traders.”
Crude oil is up almost 50% this year, also helped by Russia’s attack on Ukraine, which sent shockwaves through the markets. While the US and UK have announced bans on Russian exports, flows to Asia have increased. China is trying to replenish strategic stockpiles of cheap Russian oil as officials scramble to quell outbreaks of Covid-19. India has also boosted buying.
Mixed signals came out of China on Friday. As banks cut a benchmark long-term lending rate by a record to prop up a slowing economy, Shanghai found its first non-quarantine cases of Covid-19 in six days. It raises questions about whether the city’s easing of lockdown will be affected.
Prices:
- WTI for June delivery rose 4 cents to $112.25 a barrel as of 10:26 am New York.
- WTI for July, showing larger volume and open interest, rose 10 cents to $109.99
- Brent rose 14 cents in July to $112.18 a barrel
- The global benchmark prompt spread, the difference between the two closest contracts, widened as much as $2.45 in backwardation – a bullish pattern – compared to $1.80 a week ago
Dealers are also keeping a close eye on the market for refined products as a global inventory shortage coincides with the start of the summer driving season. On Wednesday, US crude oil data showed continued market tension, with gasoline inventories falling to their lowest since December and demand picking up.
The rise in oil prices has contributed to the fastest inflation in decades, prompting the US Federal Reserve to promise it will keep raising interest rates until there are clear signs that price pressures are easing. This has led to wild shifts in investor risk appetite and volatile stock, bond and commodity markets.
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