Oil headed for a third weekly gain as the market continued to tighten on the back of production cuts from Saudi Arabia and Russia.
West Texas Intermediate traded near $91 a barrel on Friday, the highest since November. The International Energy Agency and Organization of Petroleum Exporting Countries both warned this week that the market would be in deficit through year-end, helping push prices up about 3.5% from last Friday’s close.
Widely watched timespreads continue to signal a supply shortfall. The gap between WTI’s two nearest contracts reached 84 cents a barrel in bullish backwardation, also the highest level since November.
On the demand side, the picture has brightened on signs the US may be able to avoid a recession, while data from China on Friday beat economists’ estimates, suggesting the worst of the downturn is passing. The tightening market is also reflected in surging fuel prices, with diesel at a seasonal record in New York.
Crude has jumped more than 30% since mid-June, with analyst predictions of $100 a barrel becoming less rare. Still, there are technical indications that the rally is overdone. Brent’s 14-day relative strength index has been above the threshold signaling a potential pullback for much of the past two weeks.
“Crude flat price and structure continues to rip,” said Keshav Lohiya, founder of consultant Oilytics. “The crude market is now firmly in OPEC’s hands as it’s up to Saudi now when to start reversing some of these voluntary cuts.”
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