Crude oil set for second weekly gain

OIL headed for its first back-to-back weekly gain since February as output cuts from the biggest producers and a nascent recovery in demand began to rebalance a market awash with crude.

Futures in New York rose toward US$25 a barrel yesterday and are up about 21% so far this week. Saudi Arabia, the world’s largest oil exporter, raised the cost of almost all grades for June, suggesting it’s more interested in supporting a recovery in prices than competing for market share.

There was also more evidence demand is starting to come back in the US. Gasoline supplied, an indicator of consumption, rose by the most in almost two years last week, while

Genscape Inc reported that stockpiles at the storage hub at Cushing, Oklahoma have fallen since last Friday, which would be the first contraction since late February if confirmed by government data.

While there’s still a substantial glut to clear, the numbers are prompting optimistic assessments from some influential energy analysts. Global oil demand is on an “improving trajectory” and may exceed supply by the start of June, said Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. The market will return to balance in July before moving into excess consumption for the rest of the year, according to Standard Chartered Plc. The “massive” price hikes by Saudi Arabia “show the willingness to bury the hatchet with Russia in the price war,” said Eugen Weinberg, Commerzbank AG’S head of commodity research. Recent gains in the market are largely due to a combination of higher risk appetite and expectations for stronger demand, he said. “We consider the price increase overdone, however.”

US benchmark crude needs to be capped at about US$25 a barrel to force producers to curtail output, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. That price level keeps supply from overwhelming capacity at Cushing.