Oil posts second weekly gain amid supply concerns
Oil posted its biggest weekly gain since October as supply concerns continue amid tensions in the Middle East and prospects of higher demand boosted by positive economic growth in the US.
Brent, the benchmark for two thirds of the world’s oil, rose 1.36 per cent to close at $83.55 a barrel on Friday. West Texas Intermediate, the gauge that tracks US crude, settled 0.84 per cent higher at $78.01.
“Lower US crude stockpiles [largely due to poor weather], the prospect of greater stimulus from China and elevated geopolitical tension in the Middle East have been the main factors behind the rise in oil price,” Khatija Haque, head of research and chief economist at Emirates NBD, said. “Better than expected growth data from the US and the prospect of earlier monetary policy easing in Europe have also likely contributed to the improved sentiment.”
Middle East tensions continued with Yemen’s Houthi rebels attacking ships in the Red Sea – a main trade route connecting Asia and Europe – which raised concerns that the attacks could disrupt energy supplies from the Middle East.
QatarEnergy said that liquefied natural gas deliveries may be delayed due to disruption in the Red Sea but said production had not been affected.
US crude inventories, an indicator of fuel demand, fell by 9.2 million barrels in the week that ended on January 19, the data from the US Energy Information Administration showed, supporting oil prices.
Analysts polled by Reuters were expecting a drop of 2.2 million barrels.
“Oil bulls finally got the positive breakout that they were looking for in oil prices,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“The barrel of American crude cleared the $75 per barrel resistance and extended gains past $77 per barrel on the muddy geopolitical picture in the Middle East and on the back of a nine million barrel slump in US weekly oil inventories.”
US economic data as well as China’s stimulus measures have also helped oil prices to edge higher.
The US economy expanded in the fourth quarter, despite the Federal Reserve increasing interest rates to tame inflation in the world’s largest economy.
Gross domestic product climbed 3.3 per cent annually from October to December, compared with 4.9 per cent growth in the preceding quarter, the Commerce Department said.
Despite the slowdown, economic growth beat The Wall Street Journal economists’ expectations of an annual 2 per cent expansion.
Oil benchmarks may “retain their upwards bias upon a further escalation in global geopolitical tensions, as well as more signals of economic support out of Chinese policymakers”, Han Tan, chief market analyst at Exinity, told The National.
Last week, China’s central bank announced a deep cut in bank reserves to release more liquidity to bolster stock valuations. The move is expected to inject additional 1 trillion yuan ($140 billion) into the country’s banking system.