Oil headed for a third weekly gain — set for the best run since July — as signs of market tightness, including falling US stockpiles, offset concerns about demand weakness in top importer China.
Global benchmark Brent rose above $77 a barrel, and is about 1% higher this week, while West Texas Intermediate was near $74. Crude inventories at the Cushing, Oklahoma, hub have dropped to the lowest level since 2014. Consumer inflation in China fell further toward zero, highlighting the challenge authorities face in bolstering the economy.
Oil’s push higher in recent weeks has been supported by cold weather that’s boosted demand for heating fuels, the drawdown in US inventories, and lower shipments from Russia. President-elect Donald Trump’s imminent return to the White House is also raising risks to Iranian supplies, and creating nervousness about a potential trade war that could interrupt flows of energy.
“The reduction in inventories, perception of lower Chinese demand for Iranian exports, and the cold snap that promises to see a sizable shift in demand for heating fuel has justified this move higher,” said Chris Weston, head of research at Pepperstone Group. “However, the supply we’re now seeing into $75 suggests currently levels are fair, with a hesitation to take this toward $80.”
Trump is expected to authorize new drilling on federal lands as part of a flurry of executive orders in the early hours after his Jan. 20 inauguration. The president-elect has also pledged to put tariffs on all Canadian imports, potentially including crude.
Market metrics point to tighter conditions. Brent’s prompt spread — the difference between its two nearest contracts – has widened to 70 cents a barrel in backwardation, a bullish pattern. A month ago, the gap was 29 cents in backwardation.
