Oil Posts Weekly Advance Amid Signs of a Tightening Market

(Bloomberg) -- Oil rose this week amid signs of a tightening physical market while traders continue to assess lingering Middle East risks.

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West Texas Intermediate edged higher to settle just below $84 a barrel, concluding a weekly advance of 2% for the June contract. A report earlier this week showed US crude stockpiles dropping to the lowest since January, while gauges such as the WTI cash roll and key timespreads are signaling supply constraints.

The roll, which reflects supply-demand balances at Cushing, Oklahoma, climbed to the highest in two years. Meanwhile, WTI’s prompt spread — the gap between its two nearest contracts — has strengthened to 72 cents in backwardation, up from 55 cents last week.

Crude’s gains are being restrained by US economic data showing inflation rose in March, reinforcing concerns of persistent price pressures. The data followed weaker US economic growth and traders paring back expectations for the timing of a Fed rate reduction.

Crude has advanced this year, supported by supply cuts from OPEC+ and political risks in the Middle East, including heightened tensions between Israel and Iran that helped lift Brent above $90 a barrel earlier this month. Israel is stepping up preparations for a potential all-out war with Hezbollah.

Despite the strength in crude futures, there are concerns in other corners of the oil markets. A sharp drop in returns from making diesel is prompting some Asian refiners to make modest reductions in operating rates, which could crimp regional oil imports. Analysts have meanwhile forecast a decline in margins for making the fuel in Europe.

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--With assistance from Jordan Fitzgerald.

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