Oil set for another weekly gain amid recovery optimism

Oil is poised for a fourth straight weekly gain with optimism growing around a global demand recovery.

Futures in New York climbed as much as 1.6 per cent on Friday, recovering from Thursday's broad sell-off in commodities with the Federal Reserve planning to raise interest rates.

Oil is on track for its longest streak of weekly gains since December.

Strong U.S. demand growth is being passed on to Europe and emerging markets, where India is also starting to show improvements, according to Goldman Sachs Group Inc.

In a Bloomberg Television interview on Friday, Energy Aspects Ltd.'s Amrita Sen said the oil market could see an “incredibly” tight summer, and earlier this week, Morgan Stanley boosted its crude price forecasts.

At the same time, prices are continuing to be supported by OPEC+ producers' discipline in returning supply to the market.

“Certainly, whatever the Fed said isn't going to change much of the supply-demand fundamentals and it isn't going to change OPEC policy, at least over the next six months,” said Bart Melek, head of commodity strategy at TD Securities.

Oil has rallied this year with widespread vaccinations boosting demand, while the Organization of Petroleum Exporting Countries and its allies cautiously return shuttered supply to the market.

Meanwhile, shale producers in the oil-rich Permian Basin are holding back.

The U.S. is pumping about 1.9 million fewer barrels a day since COVID -19 caused prices to tumble last year, a reduction that's bigger than Nigeria and Venezuela's production combined.

“The proof is in the pudding,” said John Kilduff, a partner at Again Capital LLC.

Whatever the Fed said isn't going to change much of the supply-demand fundamentals.

“We haven't seen a real strong rebound in Permian activity, and we're continuing to watch pipelines out of that area be underutilized.”

West Texas Intermediate crude's discount to the global benchmark narrowed to less than US$2 a barrel on Friday for the first time since November. The spread has shrunk significantly in recent weeks on signs of higher U.S. refining throughput and continued supply discipline by American producers.

Goldman said oil is its “highest conviction” bullish call in commodities.

The Federal Reserve's announcement this week of two prospective rate hikes by 2023 contributed to a stronger dollar, making commodities priced in the currency more costly.

That triggered a commodity selloff earlier in the week.