Oil recovered in tandem with equities, yet still remains headed for an 8% weekly loss amid a fragile outlook for demand.
(Bloomberg) — Oil recovered in tandem with equities, yet still remains headed for an 8% weekly loss amid a fragile outlook for demand.
West Texas Intermediate rallied above $70 a barrel on Friday with a gain of about 3% as US banking stocks rebounded. It had been down more than 10% in the week to yesterday, and is still headed for a third weekly decline — the longest run of losses this year — amid instability among regional US lenders and fears the economy will to slide into a recession.
Futures have slumped 12% this year even after a decision by the Organization of Petroleum Exporting Countries and its allies to cut production from this month. Trading was marked by a brief-but-dramatic plunge early Thursday, when prices collapsed to touch the lowest intraday level since 2021.
Signs of strength in the physical oil market suggest the selloff may have been excessive. Shell Plc’s Chief Executive Officer Wael Sawan said this week the market was actually “pretty tight.”
His view is validated by a firming market structure. The prompt spread for global benchmark Brent — the gap between the two nearest contracts — was 21 cents a barrel in backwardation. The figure was 37 cents a barrel in backwardation a month ago.
“To be sure, there is good reason to be bullish — the trouble is that oil traders are a fickle bunch,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “It will only be a matter of time before OPEC production cuts, lackluster supply from non-OPEC+ and the constructive demand picture in China take center stage once more.”
In the Middle East, Iraq said it’s yet to strike a deal with Ankara that would allow for the resumption of almost half a million barrels a day of Iraqi oil exports via Turkey. The standoff between Baghdad and the Kurdistan Regional Government has halted shipments from the port of Ceyhan since late March. OPEC+ leader Saudi Arabia lowered prices to Asia.
Energy Daily, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.
–With assistance from Rob Verdonck.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.