Oil prices settle at highest since April on brighter demand prospects

By Myra P. Saefong and William Watts

Natural-gas futures rally on Atlantic weather developments

Oil futures on Tuesday notched back-to-back session gains to settle at their highest level in seven weeks, buoyed by upbeat prospects for global crude demand.

Natural-gas futures, meanwhile, rallied as warmer weather lifted the potential for demand and weather developments in the Atlantic renewed concerns over production in the Gulf of Mexico.

Price moves

West Texas Intermediate crude for July delivery CL.1 CLN24 rose $1.24, or 1.5%, to settle at $81.57 a barrel on the New York Mercantile Exchange. The contract expires at the end of Thursday's trading session.August Brent crude BRN00 BRNQ24 climbed $1.08, or 1,3%, to $85.33 a barrel on ICE Futures Europe. Brent and WTI prices based on the front months settled at their highest since April 30, according to Dow Jones Market Data. July gasoline RBN24 tacked on 1.5% to $2.48 a gallon, while July heating oil HON24 added 1.5% to $2.52 a gallon.Natural gas for July delivery NGN24 settled at $2.91 per million British thermal units, up 4.3%.

Market drivers

Oil has recovered from its early June pullback to test seven-week highs on "price-supportive rhetoric" from the Organization of the Petroleum Exporting Countries and its allies, said Tyler Richey, co-editor at Sevens Report Research.

The initial "knee-jerk selloff" reaction to the June 2 decision by OPEC+ to phase out voluntary oil-production cuts after the third quarter was "largely reversed and seen as overdone," Richey told MarketWatch. OPEC+ leadership "confirmed that they will remain flexible and only reduce their voluntary output cuts if market conditions warranted, and clarified increasing production is not necessarily a base-case expectation right now," he said.

"Evidence of strong domestic demand at the start of the U.S. summer driving season, rising geopolitical tensions overseas and renewed hopes for a perfectly executed [economic] soft landing" by the Federal Reserve have also contributed to oil's price rebound, Richey said.

Read: Fed's Kugler sees interest-rate cut this year and says economy is 'moving in right direction'

Geopolitics "returned as a meaningful influence on the markets in recent weeks, as there has been a resurgence in ship attacks in the Red Sea related to the ongoing Israel-Hamas/Hezbollah conflict," Richey said. Ukrainian drone attacks on Russian oil and energy infrastructure resumed this week, with a strike at a refined-product terminal in Azov resulting in an explosion and sizeable fire at the facility, he said.

Sentiment in the oil market, however, is "fragile," Richey said. "If we see any headlines that contradict any of those factors that have supported the latest rally, or even just an uptick in broad market volatility into the end of the quarter, we could see oil markets correct back towards the mid $70 a barrel range."

Uncertainty around the outlook for crude demand, particularly from China, could give traders pause following the rebound, analysts have said.

Chinese oil-refinery output fell 1.8% year over year in May, Reuters reported Monday, citing data from the country's statistics bureau.

Crude-oil processing was affected by regular maintenance work at the largest state and private refineries in May, while small independent refineries increased their processing somewhat due to a slight improvement in margins, said Carsten Fritsch, commodity analyst at Commerzbank, citing consultant data. Capacity utilization remained well below the year-ago level, with no sign of improvement so far this month, he said.

"Crude oil processing in China could therefore stagnate this year for the first time in two decades, with the exception of 2022, which was impacted by coronavirus lockdowns," Fritsch wrote. "As a result of this, crude oil processing rose to a record level in the previous year. The demand boost from China for global oil demand is therefore likely to be significantly lower this year."

Over in the U.S., energy traders will be watching weather developments in the Gulf of Mexico and the Atlantic, said Phil Flynn, senior market analyst at the Price Futures Group.

The National Hurricane Center has issued marine warnings for the Gulf of Mexico and advisories for the Atlantic for a potential tropical cyclone, renewing concerns of potential disruptions to energy output and demand during the Atlantic hurricane season, which runs through Nov. 30.

Meanwhile, weekly U.S. petroleum-supply data from the Energy Information Administration will be released Thursday at 11 a.m. Eastern time, a day later than usual due to Wednesday's Juneteenth holiday. Weekly EIA data on natural-gas supplies in storage will be released Friday at 7:30 a.m.

On average, analysts expect the EIA to report a crude-supply decline of 4.1 million barrels for the week that ended June 14, according to an S&P Global Commodity Insights survey. They also forecast supply gains of 100,000 barrels for gasoline and 280,000 barrels for distillates.

-Myra P. Saefong -William Watts

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06-18-24 1514ET

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