Oil headed for a third straight weekly gain after a surprise supply cut by OPEC+ and a drop in US inventories tightened the market outlook.
(Bloomberg) — Oil headed for a third straight weekly gain after a surprise supply cut by OPEC+ and a drop in US inventories tightened the market outlook.
Prices rallied the most this year on Monday, surging 6.3%, following the decision of the Organization of Petroleum Exporting Countries and its allies to slash more than 1 million barrels of daily output starting in May. Saudi Arabia has since hiked prices of all its oil sales to customers in Asia.
Crude has risen about 25% from its intraday lows reached mid-March, when it collapsed as banking turmoil prompted a flight from risk assets. Prices were already recovering amid growing Chinese fuel demand and a weakening US dollar when OPEC+ intervened, confounding short sellers and amplifying the rebound.
Meanwhile, geopolitical tensions in the Middle East are abating as top diplomats from Saudi Arabia and Iran meet to continue mending relations, de-escalating a decades-long rivalry that’s fueled proxy wars and rattled oil markets.
Adding to tightening supply, US crude stockpiles sank 3.7 million barrels last week, with inventories of gasoline and distillates dropping as well. Despite the fundamental picture, traders will continue to look to US economic data for further clues on recession risks and the Federal Reserve’s interest rate hikes.
“There might be some near-term volatility driven by US economic data releases and the impact on the Fed monetary policy,” said Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management. Yet,“oil should decouple from it if we see ongoing inventory declines.”
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–With assistance from Natalia Kniazhevich.
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