Oil prices finish lower, but tally a 5th straight weekly gain
Oil futures finish lower on Friday, down a second session in a row from the more than seven-year highs set earlier in the week. The decline follows a rise in U.S. crude inventories and a selloff in stocks that has weighed on overall sentiment.
“A surge in risk-off money flows in the back half of the week have caused oil futures to give back the bulk of this week’s gains,” said Tyler Richey, co-editor at Sevens Report Research. “Traders are becoming increasingly sensitive to rate-hike expectations and fears that the Federal Reserve could choke off the economic recovery.”
Still the longer-term outlook for oil remains favorable, he told MarketWatch. U.S. output hasn’t yet responded to higher prices, compliance among OPEC+ members to individual production quotas remains above 100%, and the demand outlook continues to improve as “omicron fears fade and growth outlooks rebound.”
WTI crude for March delivery (CL00) (CLH22) fell 41 cents, or 0.5%, to settle at $85.14 a barrel on the New York Mercantile Exchange, trimming the U.S. benchmark’s weekly advance to 2.2%, according to Dow Jones Market Data.
Both WTI and Brent closed Wednesday at their highest since October 2014 and marked a fifth consecutive weekly gain.
“Crude prices may not have a one-way ticket to $100 oil, but the supply-side fundamentals certainly support that could happen by the summer,” said Edward Moya, senior market analyst at OANDA, in a market update.
“The next few trading sessions could be difficult for energy traders as oil prices may move more so on investor positioning ahead of Wednesday’s FOMC policy decision and over a handful of brewing geopolitical risks, that include Russia-Ukraine tensions, Iran nuclear talks, and developments with global handling over North Korea,” Moya said.
Friday’s decline followed minor losses Thursday , the day the Energy Information Administration reported that U.S. crude inventories, excluding the SPR, unexpectedly climbed by 500,000 barrels for the week ended Jan. 14. The EIA also reported a weekly inventory increase of 5.9 million barrels for gasoline, while distillate stockpiles fell by 1.4 million barrels.
Crude prices had “recently been reacting only to news that supported higher prices, such as temporary supply outages that have meanwhile been resolved. The question now is whether the correction will continue or whether the lower price level will be viewed by market participants as a buying opportunity,” said Carsten Fritsch, analyst at Commerzbank, in a note. “Both scenarios are possible as things currently stand.”
Analysts said a continued slide in equities was taking a toll on sentiment for other assets viewed as risky. A sharp rise in Treasury yields tied to expectations for a series of rate increases by the Fed that is expected to be more aggressive than previously expected has been blamed for a stock-market selloff that’s sent the tech-heavy Nasdaq Composite (COMP) into correction territory, while also dragging down other major indexes, including the Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX)
Growing risks to global supplies provided support for oil prices overall for the week, spurring talk of an eventual rise to $100 a barrel. WTI and Brent haven’t traded at a level that high since 2014.
The market has been closely following geopolitical developments this month, including unrest in Kazakhstan, an attack on oil infrastructure in the United Arab Emirates, a temporary disruption to crude flows through the Kirkuk-Ceyhan pipeline and the possibility of a Russian invasion of Ukraine.
On Friday, tensions in the Middle East worsened as a Saudi-led coalition airstrike on Houthi-controlled territory in Yemen hit a prison, killing dozens of people, according to The Wall Street Journal .
Oil prices are likely to reach $100, but “without a serious geopolitical shock,” that may not happen until next year, Matthew Parry, head of long-term analysis at Energy Aspects, recently told MarketWatch.
“The main cause of this predicted upside will be total liquid [petroleum] demand consistently outpacing relatively anemic supply growth — a consequence of years of insufficient [capital expenditures] — as persistent deficit coincides with relatively low levels of global stocks,” he said.
In other Nymex dealings, February gasoline (RBG22) lost 0.8% to $2.442 a gallon, ending 1% above the week-ago settlement. February heating oil (RBG22) rose 0.7% to $2.691 a gallon, for a weekly rise of 2.2%.
Natural gas for February delivery (NGG22) settled at $3.999 per million British thermal units, up 5.2% on Friday, but down 6.2% for the week.
“The price action in natural gas has been all about weather this week, as the extended forecasts for February have come in warmer than average,” said Sevens Report’s Richey. But some revisions calling for moderately colder temperatures than initially expected sparked some profit-taking, “as the market was pretty deeply oversold on a low time frame basis.”