Oil prices look for recovery, but headwinds remain

Inflationary concerns in the United States, geopolitical issues and renewed lockdowns in Europe are among the factors that could influence the price of oil this week, analysts said.

West Texas Intermediate, the U.S. benchmark for the price of oil, finished trading last week down about 6 percent to $61.42 per barrel on Friday. Up some 26 percent on the year, last week’s price move bucked recent optimistic trends.

Tamas Varga, an analyst at London oil broker PVM, said inflationary concerns, Chinese purchases of Iranian crude and the lackluster demand in a European market returning to quarantine set back crude oil prices last week.

“For me, these are the three factors that should be in focus this week,” he said.

China has purchased Iranian crude in defiance of U.S. sanctions. That could have a geopolitical impact  as the White House tries its hand at détente with both Beijing and Tehran. For China, the purchases are a way for Beijing to show that Washington is not in sole control of the global economy. The standoff between the two leading economies could undermine recent market confidence.

For Tehran, it’s another reason to avoid serious nuclear negotiations while at the same time adding more barrels to the market.

On inflation, the federal government reported that gasoline accounted for more than half of the recent increase in consumer prices. That’s reflective of the steady gains in commodity prices brought on by the optimism surrounding vaccinations  to control the COVID-19 pandemic.

Elsewhere, U.S. manufacturing data and the weekly inventory report from the Energy Department could influence oil prices this week, Varga said.

Should manufacturing data, scheduled to be released Wednesday,  show the sector continuing to expand, it would support higher crude prices. The market, meanwhile, has been keenly focused on U.S. inventories for signs that supplies are dwindling after large increases recently.

A deep freeze in Texas, which apart from oil and gas has a strong manufacturing sector, idled refinery activity in February and the industry has yet to catch up with the lost production. That leaves large segments of the economy still looking for petroleum and refined products.

Clay Seigle, the managing director of oil and gas cargo tracker Vortexa, said his primary focus was on refinery activity and inventory changes in the United States. An uptick in refinery activity would eat into a bloated inventory of commercial crude oil. Inventory changes correlate with market demand.

Despite the talk of renewed consumer activity, overall demand remains suppressed. The EIA last week reported that demand for all petroleum products fell 11 percent from the week ending March 12 from the same period a year earlier.

For Phil Flynn, a senior energy analyst at The PRICE Futures Group in Chicago, news about another increase in coronavirus cases remains a concern for the recovery in the economy and energy demand.

“Look at gasoline demand for signs of recovery,” he added.

Source: houstonchronicle.com

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