U.S. oil prices score largest weekly gain in 3 months

Price action

• West Texas Intermediate crude for August delivery
  CL00,
  -0.26%

  CL.1,
  -0.26%

  CLQ23,
  -0.26%
  rose $2.06, or 2.9%, to settle at $73.86 a barrel on the New York Mercantile Exchange. The front-month contract registered a 4.6% weekly rise, the largest since the week ending April 6, according to Dow Jones Market Data. It settled at its highest since May 24.

• September Brent crude
  BRN00,
  -0.38%

  BRNU23,
  -0.38%,
  the global benchmark, gained $1.95, or nearly 2.6%, to settle at $78.47 a barrel on ICE Futures Europe, the highest finish since May 1. It advanced by 4.1% for the week.

• August gasoline
  RBQ23,
  -0.03%
  rose 1.8% to $2.5893 a gallon, up 1.7% for the week, while August heating oil
  HOQ23,
  +0.06%
  added 3.2% at $2.5591 a gallon, for a 4.6% weekly rise.

• August natural gas
  NGQ23,
  -0.74%
  fell 1% to $2.582 per million British thermal units, tallying a 7.7% weekly drop — the largest since the week ended May 26.

Market drivers

Oil prices posted a second successive weekly gain, but “when you consider the tightness of the market, and the announcement of further output cuts this week, it’s somewhat surprising” they weren’t even higher, said Michael Hewson, chief market analyst at CMC Markets UK.  

Crude prices found support Thursday after the Energy Information Administration on Thursday reported that U.S. commercial crude inventories fell by 1.5 million barrels for the week ended June 30. That followed back-to-back weekly declines.

On average, analysts polled by S&P Global Commodity Insights expected the report, to show a decline of 3.6 million barrels.

The EIA report also revealed weekly inventory decreases of 2.5 million barrels for gasoline and 1 million barrels for distillates.

Also see: Baker Hughes data show a fourth straight weekly decline in active U.S. oil-drilling rigs

Oil also gained this week after Saudi Arabia and Russia extended their production cuts, though prices continue to “find resistance as the Federal Reserve has hinted at more interest-rate hikes to come, possibly at its policy meeting later this month, StoneX’s Kansas City energy team, led by Alex Hodes, wrote in Friday’s newsletter.

Crude had been stuck in a tight trading range for the past month, with upside limited by worries over global demand as traders fret over interest rate rises by the Federal Reserve and other major central banks, as well as China’s lackluster economic recovery following the lifting of strict COVID restrictions late last year.

The physical market for crude remains mixed, though prices for Forties crude — the North Sea grade seen as the most important physical marker due to its role in setting the Brent price — has been softening, said Michael Tran, analyst at RBC Capital Markets, in a note.

Given the sluggish physical market over the last few quarters, “it is challenging to have a highly convicted view on deploying upside risk into Brent spreads until there is indication that the physical market is clearing at an accelerated pace,” he wrote. “In the same vein, the soft market pricing appears to be reflecting little room for error.

“We believe that any true signs of physical strength should result in a new strong and swift change in trend for summer pricing,” Tran said.

Meanwhile, prices for natural gas continued to trade higher after the release of the EIA’s weekly report on U.S. supplies of the commodity.

The government agency reported on Friday that U.S. natural-gas supplies in storage rose by 72 billion cubic feet for the week ended June 30. Analysts had called for a storage increase of 65 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights.

However, the EIA report, which was delayed by a day this week due to Tuesday’s Fourth of July holiday, included revisions to figures tied to reclassifications of some natural gas in storage from base gas to working gas. Working gas is the volume of gas available in the market.

The EIA’s reclassifications resulted in an increase of 4 bcf in working gas stocks in the nonsalt South central region, so the implied flow for the week is an increase of 68 bcf to working gas stocks, the EIA said.