Oil prices ended sharply higher on Friday but still posted losses for a third straight week on signs of weaker global crude demand.
Brent, the benchmark for two-thirds of the world’s oil, rose 3.86 percent, or $2.80, to $75.30 a barrel. West Texas Intermediate, the indicator for US crude oil, rose 4.05 percent or $2.78 to close at $71.34 a barrel.
For the week, Brent shed 5.3 percent, while WTI, whose price fell to lows last seen in late 2021 after four straight sessions of losses, slipped 7.1 percent.
“Crude oil prices remain strong on weakening demand from Asia and [amid] US banking turmoil,” said Edward Moya, senior market analyst at Oanda.
“This banking crisis could lead to the oil market pricing in a much worse recession for the US, which is bad news for the crude oil demand outlook.”
Oil futures fell for two straight weeks as a crisis at regional banks in the US led to the collapse of the First Republic Bank, the second-largest banking meltdown in the country’s history.
The US had three other failures this year – Silicon Valley Bank, Signature Bank and cryptocurrency-focused lender Silvergate Capital.
The US Federal Reserve hiked interest rates by 25 basis points on Wednesday, the tenth straight hike, hinting at a possible pause in the future.
The latest measure brings the Fed’s key interest rate into the target range of between 5 percent and 5.25 percent.
“The outlook for the economy is getting bleaker by the day and that makes it easier for energy traders to jump on the selling momentum hitting…crude oil,” Mr Moya said.
Traders will be closely following the US April employment data, which is released later in the day.
Initial jobless claims in the US — an indicator of layoffs — stood at 242,000 in the week ended April 29, up from 229,000 the previous week, according to the Labor Department.
“This was the largest rise in the metric in the last six weeks and another signal that the US labor market is starting to slow after a period of remarkable resilience over the past year,” said Daniel Richards, Mena Economist at Emirates NBD.
Meanwhile, manufacturing activity in China, the world’s second largest economy and top crude oil importer, contracted in April on weaker domestic demand.
The Caixin Manufacturing PMI, which is a snapshot of the country’s manufacturing sector, fell to 49.5 in April from 50.0 in March. A reading below 50 indicates a contraction in the sector.
On the supply side, Iraq, Opec’s second largest producer after Saudi Arabia, has reportedly set a date for resuming oil exports from the Kurdistan Region. About 450,000 barrels of crude oil pass through the export channel.
“The central government has reached the final stage of implementing the agreement with Erbil on resuming oil exports from the Kurdistan Region,” Iraqi Oil Minister Hayan Abdul Ghani was quoted as saying by the Iraqi News Agency on Thursday.
“The oil marketing company that has been handling the process of obtaining and exporting oil from the region is now in the process of signing deals with oil-buying companies,” Mr Ghani said.
“In the coming days, the resumption of oil exports will be announced.”
In March, an international arbitration ruling declared Kurdish oil exports illegal, leading to the disruption of oil supplies to the main export pipeline through Turkey’s Ceyhan port. The move halted about 0.5 percent of global crude oil supply.
Baghdad and Erbil agreed last month to resume crude oil supplies, but exports remained suspended amid unresolved issues.
Despite recent market volatility, UBS said it maintains its positive outlook and expects the oil market to tighten as Opec+ members implement their production cuts and oil demand increases in the coming months.
“Flight activity has recovered sharply this year, with activity remaining around 2019 levels. In general, we see continued oil demand and expect even higher demand in the coming months,” UBS strategist Giovanni Staunovo said in a research note on Thursday.
“The lower potential Opec+ crude production and exports should help the oil market tighten, supporting our view that oil inventories will start to decline and support prices.”
Brent surpassed $85 a barrel last month after Opec+ producers announced voluntary production cuts of 1.16 million barrels a day to ensure oil market stability.
“The surprise cut has proved little deterrent to sellers, although it may have helped the price rally around the March lows,” said Craig Erlam, senior market analyst at Oanda.
“It seems like volatility is continuing and traders may fear another surprise intervention even though the next meeting is now a month away.”
Updated May 06, 2023 4:49 am
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