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Futures Movers: Oil ends higher, but suffers largest weekly loss since October

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Oil futures ended higher Friday, for the first time in six sessions, buoyed in part by growing tensions in the Middle East.

Prices, however, logged their largest weekly loss since October as worries over renewed lockdowns and a sluggish vaccine rollout in parts of Europe threaten energy demand.

Reports Friday that an oil facility in Saudi Arabia was attacked by drones helped lift prices to session highs. Aljazeera reported that Saudi Arabia said drones struck an oil facility in the capital of Riyadh Friday and ignited a fire, though authorities did not name the facility.

The news “helped stop the oil correction bleeding,” said Phil Flynn, senior market analyst at The Price Futures Group, but is likely to have only a short-term impact on prices.

Tensions in the Middle East have climbed. Warplanes from a Saudi-led coalition dropped bombs on Yemen’s rebel-held capital Sanaa earlier this month following attacks on Saudi Arabia’s oil and military facilities that have been blamed on Iran-backed Houthi rebels.

“In the bigger picture, it looks like we have an overdue COVID-inspired price correction that should be over soon,” Flynn told MarketWatch. “The rebound was not convincing enough to suggest the correction in oil is over yet, but most believe that there is not too much more downside.”

West Texas Intermediate crude for April delivery
CL.1,
+2.65%

CLJ21,
+2.65%

rose $1.42, or 2.4%, to settle at $61.42 a barrel on the New York Mercantile Exchange, giving up earlier losses after touching a low at $58.94.

The April contract expires at the end of Monday’s session. The May WTI
CLK21,
+2.58%
,
the most-actively traded contract, tacked on $1.38, or 2.3%, at $61.44.

May Brent crude
BRN00,
+0.28%

BRNK21,
+0.28%
,
the global benchmark, rose $1.25 , or 2%, at $64.53 a barrel on ICE Futures Europe.

Read: Why Goldman Sachs sees a ‘buying opportunity’ in oil’s recent selloff

For the week, WTI crude lost 6.4%, while Brent declined by 6.8%, the largest declines since October for both benchmarks, following big losses on Thursday, when WTI plunged 7.1%, while Brent dropped 6.9% for its biggest one-day percentage loss since June.

“This was a long overdue correction,” said Troy Vincent, market analyst at DTN. He pointed out with more than 9 million barrels per day of crude production sitting on the sidelines because of output cuts by major oil producers, and Europe and developing economies suffering from lack of vaccine access, the bullish trend in prices “made no sense given the physical market reality.”

Meanwhile, oil traders have become “concerned with worries of rising inflation, while European growth is threatened by a slow pace of vaccinations coupled with a resurgence in COVID cases and lockdowns in Italy and France,” said Marshall Steeves, energy markets analyst at IHS Markit.

There have been safety concerns surrounding the AstraZeneca vaccine, but Germany and other countries are now resuming AstraZeneca coronavirus vaccinations, following a recommendation by European regulators that the benefits of the shot outweigh the risks.

Still, oil demand remains a concern after Federal Reserve Chairman Jerome Powell indicated on Wednesday that the central bank would keep interest rates low likely well into 2023 and expected inflation to potentially average above their target of 2%.

“This could crimp oil demand if consumers have less discretionary income to spend,” Steeves told MarketWatch.

WTI and Brent futures still trade 20% or more higher year to date.

However, U.S. crude stock builds in recent weeks have “occurred counter” to the the desired goal of the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, of rebalancing inventories, said Steeves. U.S. crude inventories saw a fourth straight weekly rise for the week ended March 12.

“As a result of the disparity between the U.S. and the rest of the world, a backwardation has become more manifest in Brent crude futures, while WTI mostly has been in a contango or just a weak backwardation, he said. In backwardation, futures prices are below the spot market. In contango, prices for future delivery rise above the spot market, which can encourage traders to store oil.

“That could change if U.S. stocks begin to draw down again, especially if demand for refined products accelerates through the second quarter,” Steeves said.

Data Friday from Baker Hughes
BKR,
-1.13%
,
however, implied potential for a future rise in production, as the number of active U.S. rigs drilling for oil climbed by nine to 318 this week. That was the largest weekly increase since January.

On Nymex Friday, April gasoline
RBJ21,
+0.25%

fell less than 0.1% to $1.94 a gallon, ending 9.6% lower for the week, while April heating oil
HOJ21,
+2.42%

added 2.1% to $1.82 a gallon, but saw weekly loss of 7.4%.

Natural gas for April delivery
NGJ21,
+2.38%

tacked on 2.2% to nearly $2.54 per million British thermal units, looking at a weekly decline of 2.5%.

Also see: China’s pollution reduction efforts look set to disrupt iron ore’s rally

: Nordic countries outliers as Europe resumes use of AstraZeneca shot

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