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Futures Movers: Oil prices on track for highest finish since March, buoyed by trader optimism over the demand outlook

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Oil futures moved up on Monday, finding support as signs of a demand recovery in the U.S. and Europe feed optimism over the outlook for energy demand, despite a round of weaker-than-expected economic data from China.

“The market appears to remain focused on longer-term optimism tied to strong demand recovery in the U.S., Europe and much of Asia,” said Robbie Fraser, global research and analytics manager at Schneider Electric, in a note.

West Texas Intermediate crude for June delivery
CL00,
+1.04%

CLM21,
+1.04%

rose 70 cents, or 1.1%, at $66.07 a barrel on the New York Mercantile Exchange. July Brent crude
BRN00,
+0.89%

BRNN21,
+0.89%
,
the global benchmark, was up 61 cents, or 0.9%, at $69.32 a barrel on ICE Futures Europe.

Weakness in the U.S. dollar contributed support to dollar-denominated prices of oil, said Troy Vincent, market analyst at DTN. The ICE U.S. Dollar Index
DXY,
-0.07%

weakened a bit on Monday, and trades lower month to date.

That, “combined with the fundamental outlook of continued draws to global inventories heading into the summer, is helping keep Brent in its comfortable $65-$72 range despite some recent disappointing economic data points globally,” Vincent told MarketWatch.

Both benchmarks were on track to log their highest settlements since March, based on the front-month contracts, FactSet data show.

Baker Hughes
BKR,
+1.48%

on Friday reported a weekly rise of eight in the number of active U.S. rigs drilling for oil to stand at 352.

U.S. rig counts picked up a bit in the past week of data, but oil production levels “have yet to see a meaningful bounce in the face of higher prices and should be closely watched over the coming weeks,” said Fraser.

Meanwhile, China said retail sales in April were up 17.7% from the pandemic-suppressed level seen a year earlier, compared with a 34.2% rise in March, The Wall Street Journal reported. April industrial production rose 9.8% year over year in April, after a 14.1% rise in March, while fixed-asset investment decelerated to 19.9% in the January-April period versus 25.6% in the first quarter.

Still, analysts said oil appears to be underpinned by optimism over the demand outlook for the second half of the year, a view reinforced by monthly forecast updates from both the Organization of the Petroleum Exporting Countries, or OPEC, and the International Energy Agency.

“As we see it, the situation on the oil market is fairly stable at present, with robust demand offsetting the increased supply from OPEC+ and possibly also from Iran, which is presumably preparing itself just now for the U.S. sanctions to be eased or even lifted” as negotiations continue around the Iran nuclear agreement, said Eugen Weinberg, analyst at Commerzbank, in a note.

“In a joint assessment by the leading energy agencies, not even the ongoing problems in India, the world’s third-largest oil importer, will be able to derail the recovery of demand,” he wrote. “Given the large number of short-term factors, we expect the volatile sideways trend of the oil price to continue.”

Among other energy futures traded on Nymex, June gasoline
RBM21,
+0.95%

tacked on 1% to $2.15 a gallon and June heating oil
HOM21,
+0.92%

added 0.9% to $2.05 a gallon.

Natural-gas futures rallied in Monday dealings, with the June contract
NGM21,
+5.50%

up 6.1% at $3.14 per million British thermal units. Prices based on the front-month contracts haven’t settled above the $3 mark since February, when prices hit their highs for the year so far, FactSet data show.

Henry Hub natural-gas futures surged Monday “after breaking out from a major level of technical resistance amid strength in [liquid natural gas] exports, lower inventory builds,” and U.S. temperatures rise after an otherwise cool spring, boosting demand prospects for natural gas, said Vincent.

“While technically this opens the door for a run up” to the $3.38 level, with
inventory levels remaining high and gas-to-coal switching likely to pick up as gas prices move above $3, “a move to 2020 highs should be temporary,” he said.

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