Oil futures nudged higher Friday, on track for a fourth straight weekly gain, as traders remained upbeat over energy demand prospects and commodities enjoyed a lift from a weekly decline in the U.S. dollar.
The spread of the omicron variant of the virus that causes COVID-19 sparked a sharp selloff in crude in November and December, but oil has more than recouped those losses as fears of widespread lockdowns and hits to demand failed to materialize.
Meanwhile, the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have stuck to a plan to incrementally boost production, resisting pressure from the Biden administration and others to speed up increases. Also, some OPEC members have failed to meet boosted quotas.
“On the fundamental side, despite the COVID-19 variant, demand remains strong as OPEC remains in no rush to flood the market. Technically, a solid base around the $79-$80 dollar range has been established which will likely result in a move to $85 before moving back to the mid-$80 trading range,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
West Texas Intermediate crude for February delivery
CL00,
CLG22,
rose 72 cents, or 0.9%, to $82.84 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark on track for a 5.1% weekly gain. March Brent crude
BRN00,
BRNH22,
the global benchmark, was up 87 cents, or 1%, at $85.33 a barrel on ICE Futures Europe, headed for a more than 4% weekly advance.
Read: Tensions between Russia and Ukraine aren’t fully priced into commodities
Supply expectations continue to call for increased production from OPEC+, which is comprised of the Organization of the Petroleum Exporting Countries and its allies, and from U.S. shale producers in the months ahead, said Robbie Fraser, global research & analytics manager at Schneider Electric, in a note.
“However, geopolitics and unplanned disruptions have added support to prices at least for the near-term,” he said. “Unrest in countries like Libya and Kazakhstan caused some strong, but likely temporary, production losses in recent weeks, while the chances of a breakthrough around a renewed Iranian nuclear deal have again faded.”
“The net result is mixed conditions that in some ways were reflected by this week’s [Energy Information Administration] report, which showed a stronger decline in U.S. crude stocks that was largely countered by a significant build for gasoline stocks,” said Fraser.
Oil prices traded highest Friday despite news of a potential release of crude from China’s strategic reserves. Reuters reported that China will release oil near the Lunar New Year, which falls on Feb. 1., as part of an effort by global consumers coordinated by the U.S.
A weaker U.S. dollar. meanwhile, has contributed to the rise in oil prices, analysts said. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, was on track for a 0.7% weekly fall and is down around 1% in the new year. A weaker dollar can be supportive to commodities priced in the unit, making them less expensive to users of other currencies.
Read: Why a falling dollar signals ‘markets are in wonderland’ over inflation and Fed
Some analysts, however, see scope for oil prices to take a breather near current levels.
“While the outlook for the global oil market has improved in recent weeks with a smaller surplus now expected in 2022, the developments have likely not been bullish enough to push futures to new multiyear highs just yet,” said analysts at Sevens Report Research, in Friday’s newsletter.
“To be clear, the long-term uptrend in oil remains very much intact right now, but oil has become near-term overbought,” they said. “As such we expect the market to consolidate some here after WTI has rallied more than 25% since the Dec. 20 lows.”
Among the petroleum products traded on Nymex, February gasoline
RBG22,
tacked on 0.7% to $2.401 a gallon, eying a more than 4% rise for the week. February heating oil
HOG22,
was also up nearly 0.2% at $2.612 a gallon, poised for a weekly climb of over 5%.
Natural-gas futures, meanwhile, saw their February contract
NGG22,
traded 1.7% lower at $4.198 per million British thermal units, extending the 12% drop suffered on Thursday. For the week, however, prices were set for a more than 7% climb.
