Oil Rises on Strong Demand
Oil headed for a third weekly gain, set for its best gain since July as signs of market tightness, including a drawdown in U.S. inventories, offset concerns about weaker demand in top importer China.
Global benchmark Brent rose above $77 a barrel, and is about 1% higher this week, while West Texas Intermediate is nearing $74. Crude inventories at the Cushing, Oklahoma, hub have fallen to their lowest since 2014. Consumer inflation in China has fallen further toward zero, highlighting the challenges authorities face in strengthening the economy.
The rally in oil prices in recent weeks has been supported by cold weather that has boosted demand for heating fuel, a drawdown in U.S. inventories and lower shipments from Russia. President-elect Donald Trump’s return to the White House has also raised risks to Iranian supplies, and raised concerns about a potential trade war that could disrupt energy flows. “The drop in inventories, the perception of lower Chinese demand for Iranian exports and the cold weather that promises a big shift in heating fuel demand have justified this rally,” said Chris Weston, head of research at Pepperstone Group. “However, the supply we’re seeing now at $75 suggests the current level is reasonable, with doubts about taking it to $80.”
Trump is expected to authorize new drilling on federal lands as part of a series of executive orders in the early hours after his inauguration on Jan. 20. The president-elect has also vowed to impose tariffs on all Canadian imports, including crude. Market metrics point to tighter conditions. The Brent prompt spread — the difference between its two nearest contracts — has widened to 70 cents a barrel in backwardation, a bullish pattern. A month ago, the spread was 29 cents in backwardation.
Source: Bloomberg
