Oil jumped after a reading on US consumer inflation expectations was revised lower, adding optimism to crude’s demand outlook.
West Texas Intermediate traded at about $107 a barrel, erasing much of this week’s loss. Friday’s rally comes as the University of Michigan’s final June reading of longer-term consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper Federal Reserve interest-rate hikes.
Additionally, a surging structure is a reminder to traders of a robust physical market. High refined product prices also pointed to a continued demand pull, suggesting that the recessionary fears aren’t yet rippling through to the pump.
“Crude prices were on a roller coaster ride this morning rallying after a key economic survey showed modest improvement with inflation expectations,” said Ed Moya, senior market analyst at Oanda. “Wall Street remains optimistic that inflation will improve over the next year, and that is good news for risky assets, especially commodities.”
Oil’s rally went into reverse earlier this month on escalating concern over a global slowdown as central banks, including the US Federal Reserve, boosted interest rates to quell raging inflation. Prices have sunk despite signs that energy markets remain tight in the near term as the war in Ukraine drags on and supply risks persist. Still, key timespreads remain elevated.
In a show of market strength, Murban crude in the Middle East was in a backwardation of more than $10 over its nearest two months, an unprecedented value that indicates major supply scarcity.
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Oil market backwardation, a bullish pattern in which near-term prices trade above longer-dated ones, has grown in recent days. Brent’s prompt spread -- the difference between its two nearest contracts -- was $3.83 a barrel, compared with $2.73 a week ago.
That in part reflects still-strong demand for real-world barrels. Cargoes for Asian buyers are fetching giant premiums to their benchmarks for August loading, signaling confidence in demand over the next few months.
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