Oil prices were poised for a second weekly gain in a row early on Friday, as traders bet that the worst of the demand loss is behind us while production cuts from OPEC+ and North America will accelerate.
Oil prices are on course to wrap up their second consecutive week of gains, following one of the worst months in the history of oil, which saw WTI Crude front-month futures plunge into negative territory to close at -$37 a barrel a day before the contract expired.
Last week was the first week in over a month in which oil prices recorded a weekly gain.
This week, the market looked at signs of demand picking up as lockdowns were eased in some U.S. states and major European economies. Inventory builds in the United States slowed down from the record-high builds reported in previous weeks, as gasoline demand began to slowly crawl up from the lows seen in mid-April.
As oil prices have gained prominence in the news cycles over the past two months because of ‘everything unprecedented’ in demand, supply, OPEC+ deals, investors and traders piled into oil-linked products. They have increased money flows into oil-centric exchange-traded products (ETPs) in the hope that oil prices will rebound, Emily Doak at Charles Schwab said in a note this week. Related: Why This Oil Rally Won't Last
Doak, a senior research analyst covering exchange-traded funds (ETFs), cautioned investors, saying that “because a fund has dropped in value, does not mean it’s a bargain.”
“Investors should proceed with extreme caution when purchasing oil-linked ETPs. When the front-month WTI contract fell below $0 on April 20, 2020, only a few people were able to profit--primarily those with storage or transportation facilities in Cushing. For anyone not willing and able to take delivery, negative prices did not create an attractive, arbitrage opportunity,” Doak said.
After the WTI Crude futures collapsed into negative territory on April 20, some brokerages started to limit the ability of their smaller customers to place new trades in the June futures contracts of WTI and Brent Crude.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Egyptian Billionaire: Buffett Is Wrong, Oil Will Hit $100 Within 18 Months
- The Terrifying Truth About Trading Oil
- Saudi Arabia Raises Oil Prices As Demand Recovers