Oil scores weekly gains, with U.S. prices ending above $80 for first time this month

By Myra P. Saefong and Isabel Wang

'Tight inventory balances' support natural-gas prices

Oil futures climbed on Friday, contributing to gains for the week and prompting U.S. benchmark prices to settle above $80 a barrel for the first time this month, as some economic data from the U.S. and China raised hopes for stronger crude demand.

Oil prices found additional support following a decline in the U.S. dollar this week, and back-to-back weekly declines in domestic crude supplies.

Price moves

West Texas Intermediate crude for June delivery CL.1 CLM24 rose 83 cents, or 1.1%, to settle at $80.06 a barrel on the New York Mercantile Exchange, ending at the highest since April 30 and up 2.3% for the week. The most active contract, July WTI CLN24, rose 84 cents, or 2.2%, to $79.58 a barrel.July Brent crude BRN00 BRNN24, the global benchmark, climbed 71 cents, or 0.9%, at $83.98 a barrel on ICE Futures Europe, for a weekly rise of 1.4%. It also settled at its highest since April 30.June gasoline RBM24 climbed 1.4% to $2.57 a gallon, tacking on 3% for the week, while June heating oil HOM24 edged up 1.7% to $2.49 a gallon, for a weekly rise of 2.1%.Natural gas for June delivery NGM24 rose nearly 5.3%, to $2.63 per million British thermal units - up 16.6% for the week.

Market drivers

Oil prices ended the week with modest gains, and U.S. benchmark prices finished at their highest level of the month.

"Between the rebound in gasoline demand to back above its recent trend in the [Energy Information Administration] data, looming uncertainty surrounding the OPEC+ policy decision, and simmering geopolitical tensions in the Middle East and Eastern Europe, risks are skewed to the upside now after the sharp pullback that began in late April," Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Whether or not OPEC+, which is made up of the Organization of the Petroleum Exporting Countries and its allies, extends policy through the end of the year. And "any unforeseen caveats to the group's outlook or production stance in the wake of their June meeting will be an upside threat to prices," said Richey. A renewed downturn in gasoline demand, meanwhile, "would be a downside threat, especially with recession fears on the rise recently."

Meanwhile, signs of slowing U.S. inflation whacked the dollar on Wednesday, sending the greenback to its weakest level in over a month.

The U.S. CPI number released this week showing a slowdown in the inflation rate has "brought some hopes back among traders who think that a drop in oil prices could boost economic activity - and that should support oil prices," said Naeem Aslam, chief investment officer at Zaye Capital Markets.

The ICE U.S. Dollar Index DXY, a gauge of the dollar's value against a basket of rivals, was off 0.8% this week, providing support for dollar-denominated oil prices.

Ricardo Evangelista, senior analyst at ActivTrades, said the data showing a slowdown in consumer price rises "strengthened the case for the Federal Reserve to begin cutting rates in the near future, resulting in a dollar devaluation against other major currencies."

Nevertheless, the biggest question mark for oil traders, and potentially the main price driver in the medium term, still rests on the forecasts for crude demand, Evangelista said in emailed commentary on Friday.

Crude found support this week from data showing that U.S. commercial crude inventories declined for a second week in a row, with the Energy Information Administration reporting on Wednesday a fall of 2.5 million barrels for the week that ended May 10.

"U.S. inventories came up shorter than predicted, raising hopes of greater crude demand, but the upside created by this news was capped by uncertainty over the Chinese economy," Evangelista said. "Such doubts grew after the imposition of fresh U.S. import tariffs on Chinese goods, feeding apprehension over demand from the world's leading crude importer."

China's industrial production rose by 6.7% in April from a year ago, beating expectations for 5.5% growth, but retail sales unexpectedly slowed to 2.3% from 3.1% in the prior month, the National Bureau of Statistics said on Friday.

The data "reinforce the scene of division in the Chinese economy, but the demand for crude may continue to grow, which may lead to the sustainability of the recovery in crude prices," said Samer Hasn, market analyst at XS.com in market commentary.

Natural-gas futures, meanwhile, climbed Friday and ended sharply higher for the week.

Prices have been supported by "tight inventory balances ahead of peak summer months," said Victoria Dircksen, commodity analyst at Schneider Electric, in a daily report. "However, concerns persist regarding continued weaknesses and the potential return of production as pipeline maintenance issues are resolved, posing a near-term bearish risk."

-Myra P. Saefong -Isabel Wang

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05-17-24 1522ET

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