Despite continued pressure on oil prices, the commodity will likely end the week with a gain. Although crude began Friday trade with a loss, it was modestly up at the time of writing.
West Texas Intermediate had recovered to top $70 per barrel at the time of writing and it was set for a weekly gain of more than 4%. On a monthly basis, however, WTI has lost about $3 per barrel.
Brent crude also looked set to end the week with an overall gain: the benchmark started the week at around $70 per barrel and has since climbed to over $76 per barrel, although Brent remains much lower than it was a month ago, at over $82 per barrel.
The main upward force in oil markets remains the expectation of returning Chinese demand, although most analysts believe the oil market won’t tighten until the second half of the year. A growing consensus that fears of a banking crisis were overblown and last week’s selloff was largely speculative has further helped oil markets recover. Finally, rumors that the Fed may end its string of interest rate hikes soon have provided some hope to markets.
The recent slew of bearish catalysts for oil prices includes the U.S. Energy Information Administration’s latest weekly report, which estimated another inventory build, the Fed’s interest rate hike, and Energy Secretary Jennifer Granholm’s statement on Thursday that the federal government will take its time with refilling the strategic petroleum reserve.
It could take years to refill the SPR, Granholm said yesterday, dampening hopes for a demand spike from the refill effort, even though crude is currently trading close to the range set by the Energy Department for the start of the refill push.
Last year, the federal government sold more than 220 million barrels of crude from the SPR to lower retail fuel prices. This took the SPR to the lowest level in 40 years, at around 372 million barrels. The administration’s refill plans are seen as bullish for oil prices and tricky for the administration itself because of that.
Recession fears in the U.S., meanwhile, remain high, adding pressure to oil prices, which seem set for their sharpest quarterly drop since 2020. Back in 2020, it was the pandemic lockdowns that decimated demand and led to a plunge in prices.
Now, its recession fears, the continued flow of Russian oil abroad despite Western sanctions, and lower demand from France, where refinery workers are striking and oil tankers are being diverted from ports.
By Irina Slav for Oilprice.com
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Once this is done, it will take prices hardly any time to recover all their recent losses particularly that market fundamental continue to be robust.
And while a start of refilling of the SPR would have supported oil prices, this isn’t going to happen for years if ever for the simple reasons that shale oil which would have been a source of supply is a spent force incapable of raising its production high enough to contribute towards refilling the SPR and the global oil market is tight with no spare oil to sell.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert