Futures Movers: U.S. oil prices tally 4th straight gain, but Brent ends lower as IMF trims global growth outlook
Oil futures ended on a mixed note Tuesday, with U.S. prices stretching their streak of gains to a fourth session, but global crude benchmark prices settled lower after the International Monetary Fund trimmed its global economic growth forecast.
U.S. and global crude-oil prices had posted third consecutive session gains Monday on the back of tight supply, fueled by the global energy crisis that lifted both benchmarks to multiyear highs.
However, the IMF on Tuesday said the global economy is losing momentum. It now sees global growth of 5.9% this year, down one-tenth of a percentage point from July. It also sees growth slowing to 4.9% next year.
That led to a pull back in oil prices, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. “Obviously, the high energy prices are cutting into growth forecasts and that spooked the market a little bit.
All told, the latest news raised some doubts over whether $80 is a fair price for U.S. oil, he said. The market is “pretty overbought,” the analyst said.
West Texas Intermediate crude for November delivery
briefly fell back toward $80 a barrel on the New York Mercantile Exchange, but moved up by 12 cents, or nearly 0.2%, to settle at $80.64 a barrel. WTI marked its second straight finish above the key $80 mark and saw the highest finish since Oct. 30, 2014, according to Dow Jones Market Data.
Global benchmark December Brent crude
however, lost 23 cents, or 0.3%, to settle at $83.42 a barrel, after settling Monday at a nearly three-year high.
Meanwhile, expectations that nuclear talks with Iran may soon resume put some pressure on prices Tuesday. A top European official was due to travel to Tehran as early as this week in an effort to reach an agreement to restart nuclear talks between Iran and world powers, Bloomberg News reported Tuesday, citing officials with knowledge of the meetings.
“The oil market has put Iran on the backburner, but given the brewing energy crisis, Iran’s ability to ramp up production could easily save Europe if it has a cold winter,” said Edward Moya, senior market analyst at Oanda, in a market update. “Both sides have added motivation since the talks stalled in June.”
Meanwhile, analysts said steep backwardation — a condition in which nearby contracts trade at a premium to later-dated contracts — underscores tight supply conditions.
The premium between the December 2021
and December 2022
crude futures hit $8.50 on Monday, its highest since 2014, noted Carsten Fritsch, analyst at Commerzbank, while the differential for Brent hit nearly $8, its highest since 2013.
“Such high premiums for short-term oil deliveries point to an acute tightness of supply, brought about by robust demand and limited supply,” Fritsch wrote. “For as long as OPEC+ appears unwilling to counter this by expanding its oil production to a greater extent, this is unlikely to change, and oil prices are likely to continue rising.”
But some analysts saw reasons to be cautious following crude’s rally.
“While the market appetite remains significantly supported by the energy crisis in Europe and Asia, a correction may be looming for oil,” said Pierre Veyret, technical analyst at ActivTrades, in a note.
“Technically speaking, the slowdown of the trend after reaching $80 combined with bearish divergence on the RSI indicator suggest a technical correction could take place soon,” he said, referring to the relative strength index.
Veyret sees strong support around $76.15 and $73.50 a barrel, but said “this lower target is unlikely to be reached considering the current macro context.”
Also on Nymex Tuesday, November natural gas
climbed by 3% to $5.505 per million British thermal units, after losing 4% Monday. A week ago, prices posted their highest finish since 2008.
Read: Lofty prices for natural gas may fuel a swing back to oil as a power source
Weekly data on U.S. petroleum supplies will be released a day later than usual this week because of the Monday’s Columbus Day holiday. The Energy Information Administration will issue its report on Thursday.
On average, analysts forecast a fall of 500,000 barrels in domestic crude inventories for the week ended Oct. 8, according to a survey conducted by S&P Global Platts. They also forecast supply declines of 400,000 barrels for gasoline and 800,000 barrels for distillates.
On Nymex Tuesday, November gasoline
rose 0.2% to $2.383 a gallon — the highest front-month contract close since Oct. 6, 2014. November heating oil
shed 0.2% to $2.51 a gallon.
Read: Gasoline prices at 7-year high may take a ‘bite out of holiday spending’, says GasBuddy