Oil Logs 7th Straight Weekly Gain But One Analyst Thinks The Rally Has Stalled

Meanwhile, international groups see huge demand ahead: File Image/Pixabay

Despite trading volatility and reflecting bullish market fundamentals, oil on Friday achieved  its 7th weekly gain, even though daily gains were minimal in the face of a record demand forecast.

Brent settled up 41 cents at $86.81 per barrel and West Texas Intermediate settled up 37 cents at $83.19 after the International Energy Agency estimated that global oil demand hit a record 103 million barrels per day (bpd) in June; the IEA also forecast that demand could prove to be even greater when the tally is completed.

In its latest monthly report, the IEA also noted that "Refiners are struggling to keep up with demand growth, as the shift to new feedstocks, outages and high temperatures have forced many operators to run at reduced rates.

"Tight gasoline and diesel markets have pushed margins to six-month highs; while naphtha remains under pressure, due to competition from cheap LPG and weak petrochemical activity outside of China, high-sulphur fuel oil has tightened significantly as refiners replace lost OPEC+ crude with lighter and sweeter grades."

Trading sentiment on Friday was also said to have been buoyed by the lingering effects of the Organization of the Petroleum Exporting Countries (OPEC) stating in its monthly report (released Thursday) that it expected a healthy oil market for the remainder of 2023 and robust oil demand in 2024, due to improving global economic growth.

While the bulls are dominant for the time being, Eric Freedman, chief investment officer at U.S. Bank Asset Management, suggested that they may also have endurance considering that "The oil price keeps going higher but not as many companies are out looking for oil."

He was referring to the number of oil rigs operating in the U.S. falling for the past eight weeks and holding steady at 525 this week, according to Baker Hughes.

Indeed, Natasha Kaneva and other analysts at JPMorgan Chase & Co. stated in a note on Friday that "We believe prices will continue to climb from here towards $90," referring to the Brent benchmark and adding, "Key market gauges are pointing to a rapidly tightening physical market."

But understandably given the inconsistency of trading patterns and the sentiments governing them, not everyone was convinced that it's smooth sailing ahead: Michael Kern, an analyst at Oilprice.com, pointed out that overall the recent price rally actually stalled this week: "Backwardation in Brent and WTI futures continued to widen this week as physical tightness was felt across all continents, but China's uncertain outlook and a large U.S. inventory build have capped oil prices."

He added, "International organizations have been trying to influence the market sentiment, with OPEC raising its 2024 demand forecast whilst the IEA lowered it by 150,000 b/d, but the result (for now) is stagnation in prices."