Oil Heads for Fourth Weekly Gain on Outlook for Products Demand

Global fuel-product markets are tightening, especially in the US, where gasoline and diesel prices have risen to unprecedented levels in the run-up to summer driving season. Nationwide travel is expected to approach levels seen before the coronavirus pandemic, according to a forecast from auto club AAA.

Oil has surged almost 50% this year as demand recovered from the impact of the pandemic and Russia’s assault on Ukraine sent shock waves through global markets. While the US and UK have announced bans on Russian exports, flows to Asia have picked up. China is seeking to replenish strategic stockpiles with cheap Russian oil even as officials grapple to suppress Covid-19 outbreaks.

“Crude oil remains rangebound, caught between focusing on tight monetary policy driving an economic slowdown and a tightening global fuel-product market,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Tightness in global fuel products will underpin fuel prices, already at record levels around the world.”

There were mixed signals from China on Friday. While banks cut a key interest rate for long-term loans by a record to bolster a slowing economy, Shanghai found the first cases of Covid-19 outside quarantine in six days, raising questions on whether the easing of the city’s lockdown will be impacted.

Oil’s jump has contributed to the fastest inflation in decades, prompting the US Federal Reserve to vow that it’ll go on raising interest rates until there are clear signs that price pressures are easing. That’s spurred wild shifts in investors’ appetite for risk, swinging equity, bond and commodity markets.

Oil markets remain in backwardation, a bullish pattern in which near-term prices trade above longer-dated ones. Brent’s prompt spread, the difference between its two nearest contracts, was $2.22 a barrel in backwardation compared with $1.80 a week ago.