Oil prices post back-to-back gains as worries about economic outlook fade

By Myra P. Saefong and William Watts

OPEC secretary general reportedly expresses optimism over strong oil demand

Oil futures on Thursday posted back-to-back session gains as worries about the outlook for U.S. economic growth faded, although concerns remain about fuel demand as the summer travel season gets under way.

Price moves

West Texas Intermediate crude CL00 for July delivery CL.1 CLN24 rose $1.48, or 2%, to settle at $75.55 a barrel on the New York Mercantile Exchange after climbing 1.1% Wednesday.August Brent crude BRN00 BRNQ24, the global benchmark, added $1.46, or 1.9%, at $79.87 a barrel on ICE Futures Europe.July gasoline RBN24 tacked on 1.9% to $2.40 a gallon, while July heating oil HON24 climbed by 2.5% to $2.36 a gallon.Natural gas for July delivery NGN24 settled at $2.82 per million British thermal units, up 2.3%.

OPEC+ impact

Oil futures climbed Thursday after Wednesday's session saw Brent and WTI snap a five-day losing streak that had taken both grades of crude to four-month lows.

Losses earlier this week had followed a decision by the group of major oil producers known as OPEC+ to extend voluntary output cuts through the third quarter, then to gradually reduce those cuts.

However, ministers are "already backpedaling on their complex deal" announced last weekend to unwind the voluntary cuts, the Kansas City energy team at StoneX, led by Alex Hodes, wrote in Thursday's newsletter. "Further guidance from top OPEC+ ministers is helping alleviate some bearish concerns."

At a forum in St. Petersburg Thursday, OPEC Secretary General Haitham al-Ghais said the recent adjustments to the OPEC+ oil-production deal were a success. He expressed optimism over continued strong oil demand amid a rebound in travel, according to a report from Saudi state-owned Al Arabiya.

Demand concerns

Crude has also found support after the Institute for Supply Management's May services index came in stronger than expected, helping to ease worries about U.S. economic activity after ISM's manufacturing gauge showed a fall into contraction territory earlier in the week.

Analysts said concerns about fuel demand linger, however. The Energy Information Administration's weekly report on Wednesday showed gasoline supplied - a proxy for demand - fell below the 9 million barrel-a-day threshold in the week ending May 31, which marked the first week of what's known as summer driving season.

Read: Weak fuel demand worries markets - but it's good news for drivers

Demand metrics are under particular scrutiny after the Organization of the Petroleum Exporting Countries and its allies, known together as OPEC+, agreed Sunday to begin slowly unwinding 2.2 million barrels a day in voluntary production cuts beginning in the fourth quarter of this year.

The fall in gasoline supplied last week below the four-week average suggests a near-term peak in demand, analysts at Sevens Report Research said in a note.

Read: Plummeting oil, diesel, and copper prices signal economic stress. Here's why.

Encouragingly, the four-week average did rise by 37,000 barrels a day to 9.07 million barrels a day, so there's hope that demand could still be a source of fundamental support, they said, though last week wasn't a step in that direction, based on the data.

Oil rose Wednesday not so much because of the EIA data, but rather because economic data eased worries about recession, added to expectations the Federal Reserve will cut interest rates in the fall and boosted hopes for a soft economic landing in the U.S., they wrote.

"The stabilization in oil should be considered fragile, however, as the oil market does not like sources of uncertainty like OPEC+ delivered with last weekend's production policy decision," the analysts said.

Rise in natural-gas supplies

Separately on Thursday, the EIA reported a larger-than-expected weekly rise in U.S. supplies of natural gas.

The government agency reported an increase of 98 billion cubic feet in domestic supplies for the week that ended May 31. Analysts were looking for a build of 90 billion cubic feet, according to Robert Yawger, director of energy futures at Mizuho Securities USA.

The weekly rise was 5 billion cubic feet smaller than the five-year average for the same week, said Victoria Dircksen, commodity analyst at Schneider Electric. Consequently, the "storage surplus relative to the five-year average decreased" from 26.5% to 25.1%.

-Myra P. Saefong -William Watts

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06-06-24 1527ET

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