Oil futures climbed on Tuesday, with U.S. prices settling at their highest since January and global benchmark Brent crude marking its highest finish in about five weeks.
Gains in prices for both oil benchmarks follow Monday’s settlements at month-to-date lows, with prices pressured by worries over the outlook for energy demand, but also finding support from expectations for tighter global supplies.
Price action
-
West Texas Intermediate crude for May delivery
CL.1,
+2.16%CL00,
+2.16%
rose $1.79, or 2.2%, to settle at $81.53 a barrel on the New York Mercantile Exchange. Prices based on the front-month contract ended at the highest since Jan. 23, a day after marking their lowest finish since March 31, according to Dow Jones Market Data. -
June Brent crude
BRN00,
-0.12%BRNM23,
-0.12%,
the global benchmark, climbed $1.43, or 1.7%, to $85.61 a barrel on ICE Futures Europe, the highest since March 6. -
Back on Nymex, May gasoline
RBK23,
+1.68%
added 2% to $2.87 a gallon, while May heating oil
HOK23,
-0.43%
fell 0.5% to $2.67 a gallon. -
May natural gas
NGK23,
+2.30%
tacked on 0.6% to $2.19 per million British thermal units.
Market drivers
The oil market is “now stuck between two competing narratives,” said Troy Vincent, senior market analyst at DTN.
“On the bullish side, you have hopes of OPEC+ cuts and a Chinese economic rebound in the second half of the year pulling oil prices higher,” he told MarketWatch. “On the bearish side, you have a growing expectation that the U.S. will move into recession later this year, pulling down growth hopes for developing economies as well.”
OPEC+, the Organization of the Petroleum Exporting Countries and their allies, helped boost oil prices sharply last week when they announced plans to cut production by 1.16 million barrels per day beginning in May through the end of 2023. The cut followed another major cut announced last October.
The unexpected OPEC+ output cut helped to improve the technical outlook for oil futures, wrote analysts at Sevens Report Research in Tuesday’s newsletter.
However, U.S. benchmark WTI oil failed to hit new year-to-date highs last week and a “retracement back towards the pre-OPEC spike levels near $75[ [a] barrel should not come as a surprise, especially if there is any sort of meaningfully bearish news or a broader risk-off catalyst for markets,” they said.
Some market analysts believe traders are interpreting the output cuts as a sign that oil producers see a slowdown in global economic growth ahead, which is why the initial bump in prices has started to fade, said Stephen Innes, managing partner at SPI Asset Management, in emailed commentary.
Traders also accessed the outlook for energy demand after the International Monetary Fund said Tuesday that U.S. and global economies are likely to struggle to grow over the next few years as countries fight to reduce high inflation and cope with rising interest rates.
Meanwhile, Wednesday’s U.S. inflation data — the march reading of the consumer price index — will be important for oil markets, said DTN’s Vincent. “If inflation remains sticky, this will compel the Federal Reserve to maintain higher rates for longer, ultimately raising the odds of a broad recession in the coming months.”
Also on Wednesday, the market will also get a weekly update on U.S. petroleum supplies from the Energy Information Administration.
On average, analysts polled by S&P Global Commodity Insights expect the EIA to show an increase of 700,000 barrels in crude supplies for the week ended April 7, along with a decline of 900,000 barrels in gasoline inventories and a 2 million-barrel rise in distillate stockpiles.
Separately, in a monthly report released Tuesday, the EIA raised its U.S. and global oil-price forecasts for this year and next, and said it expects growth in the production of liquid fuels to “shift” away from OPEC-member countries.
Read: Global oil production growth will soon ‘shift’ away from OPEC, says EIA
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