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Oil Rebounds After Weekly Slump as Saudi Arabia Jacks Up Prices - BLOOMBERG
BY , Bloomberg News
An employee walks along transport pipes leading to oil storage tanks at the Juaymah tank farm at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Ras Tanura, Saudi Arabia, on Monday, Oct. 1, 2018. Saudi Aramco aims to become a global refiner and chemical maker, seeking to profit from parts of the oil industry where demand is growing the fastest while also underpinning the kingdom’s economic diversification. Photographer: Simon Dawson/Bloomberg ,
(Bloomberg) -- Oil advanced after a weekly drop as Saudi Arabia’s price hikes for customers in Asia signaled confidence in the outlook, while Israel’s latest moves in the Gaza Strip put the focus back on tensions in the region.
Brent climbed toward $84 a barrel after posting the biggest weekly loss since February. Saudi Aramco raised selling prices of all its grades to Asia for June, with the key Arab Light oil hiked by more than some refiners estimated. In the Middle East, Israel’s military has begun moving civilians out of Rafah, a possible prelude to a long-expected attack on the Gazan city.
That’s providing some support for oil that’s declined in three of the last four weeks as concerns over a wider conflict in the Middle East eased. OPEC and its allies are widely expected to press on with supply cuts in the second half of this year as they press on with efforts to prevent a surplus. The group’s laggards Iraq and Kazakhstan have outlined plans on how they will curb flows to compensate for producing above their quotas earlier in the year.
“Crude is trading higher on a combination of renewed Middle East concerns adding some premium back to prices and Saudi signaling robust demand after hiking prices to Asia,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
US jobs data last week showed an unexpected rise in unemployment, suggesting some cooling is underway in the labor market after a strong start to the year. However, it has also revived beliefs that the Federal Reserve could cut interest rates and this is buoying oil prices, said Hansen. In Europe, manufacturing data across the Eurozone in April beat expectations on Monday, signaling robust demand for oil.
Meanwhile, the operation in Rafah comes after talks over the weekend on a potential truce between Israel and Hamas in Cairo broke up inconclusively. “There are no immediate consequences for the oil market, but the geopolitical risk premium is shifting slightly,” Engie EnergyScan said in a note.
Options markets have shed the risk premium as fears of a wider, regional war dissipate. Brent skews are at their most bearish in nearly two months, with the discount of bullish calls to puts at the widest since March. Trading volumes may be muted on Monday due to a holiday in London.
Brent’s prompt spread — the difference between its two nearest contracts — has also eased in recent weeks, but remains in a positive, backwardated structure with near-term barrels more costly than those further out. The gap was 54 cents a barrel, down from 93 cents two weeks ago.
