Oil prices surge as summer demand boosts market confidence

Oil prices climbed, building on their biggest weekly advance since early April and extending a short-covering rally as traders bet on summer driving season. West Texas Intermediate (WTI) traded above $79 a barrel after climbing 3.9% last week, the first weekly gain in nearly a month. The US benchmark crude rose as traders anticipated rising demand and inventory drawdowns as the summer driving season continues. Prices also broke through their 200-day moving average.

"Oil’s resilience suggests investors are expecting the oil market to tighten as we head deeper into the US driving season," said Fawad Razaqzada, a market analyst at City Index and Forex.com. Crude futures powered higher last week, driven in part by a significant bout of short-covering, with outright bearish wagers on the global Brent benchmark falling by the most since 2020. The rally reversed a sharp slump after OPEC+ signaled the potential return of some barrels to the market later this year, prompting key members to clarify that production changes could be paused or reversed if necessary.

Market Overview:

  • Oil prices climbed with WTI trading above $79 a barrel.

  • Prices increased 3.9% last week, breaking a nearly month-long slump.

  • Short-covering and expectations of tighter oil markets contributed to the rally.

Key Points:

  • US non-farm jobs performed better than expected, aiding crude prices.

  • Federal Reserve holding interest rates steady, planning just one rate cut in 2024.

  • Chinese industrial output posted slower growth, impacting oil demand.

Looking Ahead:

  • US summer driving season expected to boost oil demand.

  • Chinese retail sales data showed stronger-than-expected growth.

  • Ongoing maintenance in Chinese refineries may impact crude throughput.

Strong macroeconomic signals, including better-than-expected US non-farm job performance and indicators of cooling inflation, have also supported crude prices. Oil had trended lower since early April due to robust supply and reduced geopolitical risk from the Middle East, as well as concerns over demand, particularly from China. Chinese industrial output and fixed-asset investment posted slower growth, and oil refining fell to the lowest rate this year after more plants shut for maintenance.

Despite these challenges, the nation's retail sales data offered some encouragement by picking up more than expected. Analysts predict that China's oil refining, known as crude throughput, is expected to be flat or decline this year for the first time in two decades, excluding a downturn in 2022 due to Covid-19. This shift follows a record processing volume in 2023 as demand rebounded.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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