Oil Prices Surge, Yet Record Consecutive Third Week of Decline

On Friday, oil prices experienced an increase; however, they faced a third consecutive weekly drop following a significant decline earlier this week, in anticipation of rising benchmark interest rates and concerns that the U.S. banking crisis may hinder economic growth and diminish fuel demand.

Brent crude concluded with a $2.80 or 3.9% gain, closing at $75.30 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) settled with a $2.78 or 4.1% increase at $71.34, after a four-day downturn pushed the contract to its lowest level since late 2021.

The Brent benchmark concluded the week with a roughly 5.3% decrease, while WTI plummeted 7.1%, despite the Friday bounce-back. This marks the first time since November that both benchmarks have experienced a three-week consecutive drop.

“Crude is attempting to counter the recent collapse in prices caused by increased interest rates and recession concerns, primarily in the banking sector,” stated Dennis Kissler, Senior Vice President of Trading at BOK Financial.

According to some analysts, the fundamentals of the physical market are more robust than what the futures market suggests.

“Rather than being driven by underlying fundamentals, the recent selling spree was fueled by concerns about demand, connected to recession risks and the tension within the U.S. banking sector,” mentioned PVM oil market analyst Stephen Brennock.

He added, “The result is a significant discrepancy between oil balances and oil prices.”

Commerzbank analysts believe that oil demand concerns have been exaggerated and anticipate an upward price correction in the coming weeks.

Equities, which frequently correlate with oil prices, also experienced an increase.

A surprisingly positive jobs report alleviated some apprehensions about an impending economic downturn, partially sparked by renewed fears in the banking sector. Investors also widely expect the Federal Reserve to hold off on rate hikes during its June policy meeting.

In contrast, China’s factory activity unexpectedly contracted in April, as orders declined and weak domestic demand weighed on the extensive manufacturing sector.

Nonetheless, anticipation of possible supply reductions during the upcoming OPEC+ producer group meeting in June has lent some price support, according to Kelvin Wong, a senior market analyst at OANDA in Singapore.

Data from oil services firm Baker Hughes revealed that the U.S. oil rig count, a predictor of future production, decreased by 3 to 588 this week.

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