Oil Set for Weekly Gain as Tight Markets Offset Slowdown Fears

By Bloomberg

Jul 29, 2022

image is BloomburgMedia_RFPNGBT1UM0X01_29-07-2022_06-00-09_637946496000000000.jpg

A fuel distributor checks the level of a gas storage tank at a Safeway gas station in Hercules, California, U.S., on Wednesday, June 22, 2022. President Joe Biden called on Congress to suspend the federal gasoline tax, a largely symbolic move by an embattled president running out of options to ease pump prices weighing on his party's political prospects. Photographer: David Paul Morris/Bloomberg

(Bloomberg) -- Oil headed for the first weekly advance in four after another period of choppy trading in which investors juggled signs of tightening markets against concerns of an economic slowdown.

West Texas Intermediate futures edged toward $97 to extend this week’s gain to around 2%. Prices are more likely to rise than fall as tight supply outweighs any risks to demand, Shell Plc Chief Executive Officer Ben van Beurden said on Thursday after the company posted record profit in the second quarter.

Futures are still poised for the first back-to-back monthly decline since 2020 after fears over a slowdown fueled bearish sentiment across markets. The US economy shrank for a second quarter as rampant inflation undercut consumer spending. The Federal Reserve also hiked interest rates this week.

While oil has given up most of the gains seen following Russia’s invasion of Ukraine in late February, the US benchmark is still up almost 30% this year. The surge in energy prices have underpinned record second-quarter earnings for Shell and TotalEnergies SE, and other supermajors are likely to follow.

The market is “weighing the trade off between recessionary risks and demand destruction as the global economy slows versus being fundamentally under-supplied,” said Stephen Innes, managing partner at SPI Asset Management. “The potential shortfall in supply signals higher prices ahead.”

The spread between WTI and Brent has widened as a reduction in Russian crude flows tightened markets in Europe. The global benchmark was at a premium of $10.33 to US crude, compared with $6.01 at the start of the month.

The US is optimistic that there could be some positive announcements from the OPEC+ meeting next week, a senior Biden administration official said. The meet will determine whether President Joe Biden will get the additional crude he requested for the global market during his visit to Saudi Arabia in mid-July.

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By Sharon Cho