Oil rose to a three-month high, trading above a key technical barrier, as signs of a tighter crude market outweighed the prospect of another hike from the Federal Reserve.
(Bloomberg) — Oil rose to a three-month high, trading above a key technical barrier, as signs of a tighter crude market outweighed the prospect of another hike from the Federal Reserve.
West Texas Intermediate surpassed $78 a barrel as OPEC+ cuts begin to materialize, tightening global supplies. The US benchmark is also trading above its 200-day moving average, which has provided strong resistance since August. Traders are watching to see if oil will settle above the threshold, which could spur additional buying, or if the resistance level holds and encourages profit-taking.
Risk-on sentiment in equity markets, which are trading near the highest levels this year, also is bolstering crude.
“The correlation between daily price movements in energy and equity markets is at the highest level we’ve seen in more than two years, which helps explain the recent run-up in futures even when fundamentals still suggest all is not well for oil producers and refiners,” analysts at wholesale-fuel distributor TACenergy wrote in a note to clients.
Crude is still down for the year, despite the recent gains and production cuts by the Organization of Petroleum Exporting Countries and its allies, including Russia. On the demand side, China’s stalled recovery has been a persistent headwind for industrial commodities, but the nation has signaled it will add stimulus to boost its economy.
“Commentary out of China is disappointing to some markets, but the fact that we are seeing stimulus, if they do anything to support the economy, it’s positive for crude because I don’t think crude has priced in stimulus,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.
Among other metrics, there are signs of strength in the market’s underlying structure. WTI’s prompt spread — the difference between its two nearest contracts — was 31 cents a barrel in backwardation, a bullish pattern that’s near the widest since mid-November on a closing basis.
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