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U.S. Oil aims for 4th Straight Gain, but Brent Stumbles

Oil futures saw mixed trading on Tuesday, with U.S. prices attempting to stretch their streak of gains into a fourth session but global crude benchmark prices on the decline after the International Monetary Fund lowered its global economic growth forecast.

U.S. and global crude-oil prices had posted a third consecutive session gain Monday on the back of a tight-supply fueled global energy crisis that lifted both benchmarks to multiyear highs.

However, the IMF on Tuesday said the global economy is losing momentum. It now sees global growth of 5.9% this year, down one-tenth of a percentage point from July. It also sees slowing to 4.9% growth next year.

That led to a pull back in oil prices, said Phil Flynn, senior market analyst at The Price Futures Group. “Obviously, the high energy prices are cutting into growth forecasts and that spooked the market a little bit.

All told, the latest news raised some doubts over whether $80 is a fair price for U.S. oil, he said. The market is “pretty overbought,” the analyst said.

West Texas Intermediate crude for November delivery briefly fell back toward $80 a barrel on the New York Mercantile Exchange, but was last up 29 cents, or 0.4% at $80.81 a barrel. WTI closed above $80 Monday for the first time since late October 2014.

December Brent crude, the global benchmark, was down 8 cents, or 0.1%, at $83.57 a barrel after settling Monday at a nearly three-year high.

Former energy bears rushed to the “long side of the market as the structural shortages are becoming more transparent,” Flynn, wrote, in a daily note. The “combination of short-sighted decisions” to close natural-gas fields and become more reliant on wind and solar, as well as decisions by politicians that “think that energy grows on trees have made policy decisions” that led to a spike in oil prices, he said.

Meanwhile, analysts said steep backwardation — a condition in which nearby contracts trade at a premium to later-dated contracts — underscores tight supply conditions.

The premium between the December 2021 and December 2022 crude futures hit $8.50 on Monday, its highest since 2014, noted Carsten Fritsch, analyst at Commerzbank, while the differential for Brent hit nearly $8, its highest since 2013.

“Such high premiums for short-term oil deliveries point to an acute tightness of supply, brought about by robust demand and limited supply,” Fritsch wrote. “For as long as OPEC+ appears unwilling to counter this by expanding its oil production to a greater extent, this is unlikely to change, and oil prices are likely to continue rising.”

But some analysts saw reasons to be cautious following crude’s rally.

“While the market appetite remains significantly supported by the energy crisis in Europe and Asia, a correction may be looming for oil,” said Pierre Veyret, technical analyst at ActivTrades, in a note.

“Technically speaking, the slowdown of the trend after reaching $80 combined with bearish divergence on the RSI indicator suggest a technical correction could take place soon,” he said, referring to the relative strength index.

Veyret sees strong support around $76.15 and $73.50 a barrel, but said “this lower target is unlikely to be reached considering the current macro context.”

Also on Nymex Tuesday, November natural gas edged up by 0.3% to $5.363 per million British thermal units, after losing 4% Monday. A week ago, prices posted their highest finish since 2008.

Weekly data on U.S. petroleum supplies will be released a day later than usual this week because of the Monday’s Columbus Day holiday. The Energy Information Administration will issue its report on Thursday.

On average, analysts forecast a fall of 500,000 barrels in domestic crude inventories for the week ended Oct. 8, according to a survey conducted by S&P Global Platts. They also forecast supply declines of 400,000 barrels for gasoline and 800,000 barrels for distillates.

On Nymex Tuesday, November gasoline rose 0.2% to $2.384 a gallon and November heating oil added 0.1% to $2.518 a gallon.

Source: Marketwatch