Oil Heads for Weekly Advance as Spreads Signal Market Strength

(Bloomberg) -- Oil was on track for a modest weekly gain as market gauges continued to show signs of strength, with OPEC+ set to decide early this month whether to extend supply cuts into the next quarter.

Brent crude futures climbed above $82 a barrel and were up 0.7% for the week, while West Texas Intermediate edged higher toward $79. Prompt spreads for both benchmarks have been expanding further in a bullish backwardation structure, an indication of tightening physical markets.

Oil capped a second monthly increase in February, although prices remain in a tight trading range. Geopolitical tensions including the Israel-Hamas war have helped spur some of the gains, but expanding non-OPEC supply and persistent concerns about China’s outlook have kept futures from rallying. The nation’s factory activity shrank again last month, adding to signs of weak demand.

“Tailwinds like tightening physical markets and headwinds such as Chinese growth concerns and higher rates in US” have kept prices in a tight range, said Ravindra Rao, head of commodities research at Kotak Securities Ltd. China’s economic recovery and OPEC+ policy remains the focus, he added.

OPEC+ is expected to extend its current supply cuts into the next quarter in a bid to avert a global glut and prop up prices, according to a recent Bloomberg survey. The group has put in place about 2 million barrels-a-day of curbs.

Meanwhile, expectations that the US will hold interest rates steady for longer were bolstered when the Federal Reserve’s preferred inflation gauge rose by the fastest pace in nearly a year. That’s likely a headwind for wider energy demand, which hurts commodities including crude.

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