Oil Ends Week 5% Higher, Gearing for Start of Peak US Driving Season
NEW YORK (Sputnik) - Oil markets rose as much as 5% on the week amid bets for higher consumption from the peak US driving season, despite record high prices of gasoline and diesel indicating demand destruction may be on the way.
New York-traded West Texas Intermediate, or WTI, crude settled at $115.07 per barrel for its July delivery contract, gaining 0.9% on the day and 4.3% on the week.
London-traded Brent crude settled at $115.56 a barrel for its August delivery contract. That was a gain of about 1% on the day and 5% on the week.
After days of choppy trading, crude prices rallied in the last two sessions of the week as worries over China’s COVID-19 situation receded. Sentiment was also boosted by optimism over fuel demand going into the weekend and ahead of Monday’s Memorial Day holiday, which unofficially flags off the peak US driving season.
“The surge in gasoline price[s] could be moderating but there is no doubt that the fundamentals for gasoline are still solid,” Phil Flynn, an oil bull who is also analyst at the Price Futures Group in Chicago, said in a commentary.
The American Automobile Association, or AAA, reported that gasoline at the average US pump was retailing at $4.599 per gallon on Friday, fractionally lower than Thursday’s all-time high of $4.60. A year ago, the average for gasoline was at $3.041.
Diesel, meanwhile, was retailing at $5.53 per gallon at the average pump, although many pumps, especially those in the West Coast state of California, were selling at well above $6 per gallon. A year ago, diesel averaged $3.179 per gallon.
“Pain at the pump has gotten so bad that demand for gasoline is dropping just as the summer driving season is about to begin,” the Business Insider publication said Thursday as it cited data showing demand on a four-week rolling basis down 5% from a year ago and at the lowest since 2013 for this time of year.
The AAA acknowledged the impact of record high fuel prices on consumption, saying it expected fewer trips and driven miles this summer. Yet, the automobile association said it expected some 39 million Americans to hit the road between Friday and Monday’s Memorial Day holiday.
Oil bulls like Flynn also counter any talk about demand destruction for fuels with data showing gasoline supplies at 8% below the five-year average for this time of year. “We have lost well over a million barrels a day of refining capacity and have closed 5 refineries or retooled them for biofuels,” Flynn added.
Adding to that, those long oil are betting on a bump-in sentiment from next week’s monthly meeting of the OPEC+ oil exporters’ alliance.
OPEC+ has managed to push crude prices up during every one of its monthly meetings this year by offering production hikes at well below demand.
Disruptions to oil supply from the long-running coronavirus pandemic and the three-month long Ukraine war have pushed crude prices up about 50% this year.
OPEC+ — made up of the 13 original members of the Saudi-led Organization of the Petroleum Exporting Countries and 10 other oil-exporting nations steered by Russia — has exacerbated the rally by producing less than what it pledged month-after-month.