Oil futures advanced on stronger-than-expected jobs data in the US and disruption to oil production in Alberta because of wildfires.
West Texas Intermediate rose as much as 3% on Monday, adding to a 4% gain on Friday when futures pared a steep weekly loss. Better-than-expected US employment data on Friday eased recession fears and raised expectations for oil demand in the world’s biggest consuming nation.
On the supply side, several oil producers in the Canadian province of Alberta have shut down production because of wildfires. At least 145,000 barrels per day of oil production have been halted.
The gains have pared back some of the losses of the previous three weeks when fears of a US recession and bank failures rattled markets, pushing crude to the lowest intraday level since late 2021.
Physical demand signals suggest at least some of the weakness in prices may have been overdone. The amount of crude held around the world on stationary tankers dropped to the lowest since mid-February, Vortexa data show.
“The crude oil market remains exposed to high level of volatility, partly driven by extreme and regular positioning changes as funds struggle to find the right direction,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
Brent crude has dropped by about 10% this year as the Federal Reserve’s most aggressive tightening campaign in a generation spurred concerns of a US slowdown or recession. The decline has come despite a surprise production cut by OPEC and its allies including Russia. Still, there’s little evidence that Moscow has so far reduced its supply despite a vow to do so.
There are now risks of a further “OPEC supply response, or at least jawboning from the group, in an attempt to backstop or shore up prices,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd.
Speculators sharply ramped up bets against oil markets last week, data showed. Money managers posted the largest increase on record in short positions on Europe’s diesel market, while also lifting them by the most since last March on Brent. US crude and diesel markets also saw increases just weeks after the OPEC+ cut designed to stem bearishness.
Goldman Sachs Group Inc. laid the blame for oil’s drop over the past three weeks on a “mostly macro-financial selloff,” according to a note from analysts including Daan Struyven. The bank expects the global market to swing to “large deficits” in the second half, supporting its case for higher prices.
The prompt spread for global benchmark Brent — the gap between its two nearest contracts — was 25 cents a barrel in backwardation. The figure has been fluctuating recently, swinging between 37 cents and 15 cents a barrel in backwardation over the previous week.
Traders will get a brace of outlooks this week on how the second half of the year may shape up. The Organization of Petroleum Exporting Countries issues its monthly snapshot on Thursday and, ahead of that, the US Energy Information Administration delivers its short-term outlook on Tuesday. The world’s largest oil producer, Saudi Aramco, will also disclose earnings.
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--With assistance from Alex Longley.
