Dubai: Oil headed for the biggest weekly gain since early October on signs of tightening supply and the prospect for improved Chinese demand, despite downward pressure from interest-rate hikes.
While West Texas Intermediate fell below $76 a barrel on Friday, futures are up around 7 per cent for the week. There are signs that Russian flows to Asia are dipping because of the price cap, while the International Energy Agency said this week that oil prices could rally next year as sanctions squeeze the nation’s supply.
China’s rapid dismantling of its Covid Zero policy has prompted optimism over the long-term outlook for demand, although the near-term outlook is uncertain as virus cases surge. Consumption may recover as early as the second quarter of next year, according to Vitol Group’s Asia Head Mike Muller.
“Supply tightness took precedence over demand concerns,” said, Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai. “Additionally, weakness in the US dollar has supported the recovery in prices.”
A Bloomberg gauge of the US dollar is below its 200-day moving average and lower for the week, making commodities priced in the greenback cheaper for overseas buyers.
Oil is set to end the year slightly higher following a volatile period of trading that’s been exacerbated by a persistent lack of liquidity. The market is still facing headwinds, with the European Central Bank echoing a warning from the US for more rate hikes, raising concerns of an economic slowdown.
Time spreads continue to signal ample near-term supply, with the gap between the two nearest contracts for WTI and Brent holding in contango. Brent was 10 cents a barrel in contango compared with 50 cents a week ago.