Friday July 29, 2022

Oil prices surge as chances of Opec+ supply boost dim

Oil prices surge as chances of Opec+ supply boost dim

Picture used for illustrative purpose only.

Oil prices jumped more than $4 a barrel on Friday as attention turned to next week’s Opec+ meeting and dimming expectations that the producer group will boost supply.

Brent crude futures for September settlement, due to expire on Friday, gained $3.29, or 3.1%, to trade at $110.43 a barrel by 11:05 a.m. (1505 GMT) after touching their highest since July 5. The more active October contract was up $4.42 at $106.25.

US West Texas Intermediate (WTI) crude futures rose $4.85, or 5%, to $101.27 a barrel. Both contracts were set for a weekly rise of about 7% but also on track for a second monthly loss, with Brent down 3.8% for July and WTI down 4.2%.

Stronger stock markets supported oil on Friday, as did a weaker dollar, which makes oil cheaper for buyers with other currencies.

“These days, there has been a lot of macro influences on the oil market with the stock market making a nice rebound and a similar fall in the dollar feeding into (today’s prices),” said John Kilduff, partner at Again Capital.

Global equities, which often move in tandem with oil prices, were up on the hope that disappointing growth figures would encourage the US Federal Reserve to ease up on monetary tightening.

A Reuters survey forecast Brent would average $105.75 a barrel this year with US crude averaging $101.28.

Front-month Brent futures are selling at a rising premium to later-loading months, a market structure known as backwardation, indicating tight current supply.

“The oil market in Europe is considerably tighter than in the US, which is also reflected in the sharply falling Brent forward curve,” said Commerzbank analyst Carsten Fritsch. Investors will watch the next meeting of the Aug. 3 meeting of the Organization of the Petroleum Exporting Countries (Opec) and allies led by Russia, together known as Opec+.

Opec+ sources said the group will consider keeping oil output unchanged for September, with two saying a modest increase would be discussed.

Analysts said it would be difficult for Opec+ to boost supply, given that many producers are already struggling to meet production quotas.

Opec+ compliance with oil output cut pledges reached 320% in June, Russian Interfax news agency reported, citing a source familiar with the data. It said the group’s combined oil underproduction was 2.84 million barrels per day last month. European and US stock markets climbed Friday despite persistent recession concerns, while oil prices surged.

European stocks closed solidly higher after official data showed eurozone growth holding up in the face of soaring inflation.

Frankfurt rose 1.5 percent and Paris climbed 1.7 per cent.

The EU’s official data agency said the 19-country eurozone’s economy grew by 0.7 per cent in the second quarter. But the euro failed to gain much traction, which analysts put down to the other piece of data released Friday: inflation rose to a new record of 8.9 per cent in July.

“This means that consumers are facing even more pressure on their disposable incomes, which should translate into lower spending and thus weaker economic activity,” said Fawad Razaqzada at City Index and FOREX.com.

Meanwhile, Wall Street continued to add to a rally that began Wednesday on the belief that the US Federal Reserve will now slow its pace of interest rate hikes, after hiking them by three-quarters of a percentage point.

The belief even overcame data Thursday showing the US economy shrank by 0.9 percent in the period from April to June, and Friday’s data that prices are continuing to rise faster than consumers’ income.

That followed a 1.6 percent contraction in the preceding three months, meaning that the world’s largest economy had met the technical definition of a recession of two consecutive quarters of contraction.

But the reading was taken as a sign of good news, since it could give the Fed room to take its foot off the pedal.

Treasury yields -- considered a barometer of future interest rates -- eased, while stocks surged higher.

Companies are in the midst of reporting quarterly earnings, and many are showing the strains from inflation and disrupted supply chains.

But the fact that earnings have been broadly better than investors feared has created positive sentiment.

Market analyst Michael Hewson at CMC Markets said investors are “taking comfort from earnings numbers that have by and large been better than expected, despite concerns about the growth outlook.”

Agencies

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