Oil prices settle lower, but notch first weekly gain in a month

Price action

• West Texas Intermediate crude for June delivery 
  CL00,
  +0.29%

  CL.1,
  +0.17%

  CLM23,
  +0.17%
  declined by 31 cents, or 0.4%, to $71.55 per barrel on the New York Mercantile Exchange ahead of the contract’s expiration at the end of Monday’s session. Prices for the front-month contract rose 2.2% for the week after four consecutive weekly declines, according to Dow Jones Market Data.

• July Brent crude
  BRN00,
  +0.01%

  BRNN23,
  +0.01%,
  the global benchmark, lost 28 cents, or 0.4%, to $75.58 per barrel on ICE Futures Europe, for a weekly climb of 1.9%.

• Back on Nymex, June gasoline
  RBM23,
  +0.15%
  rose by 0.3% to $2.58 per gallon, adding 6% for the week, while June heating oil
  HOM23,
  +0.19%
  settled at $2.36 a gallon, down 1.7% for the session, but up 2.5% for the week.

• June natural gas
  NGM23,
  +0.31%
   lost 0.3% to $2.59 per million British thermal units, with prices 14.1% higher than the week-ago settlement.

Market drivers

“Oil benchmarks enjoyed a risk-on lift this week from optimism that the U.S. will indeed avoid a default,” Han Tan, chief market analyst at Exinity Group, told MarketWatch Friday. That has set WTI up for its first weekly gain since mid-April.

Still, “oil bulls still have much to do to restore WTI back to the $80 [a barrel] handle, with prices still weighed down by persistent demand-side fears,” said Tan. “Oil’s upside is likely to remain capped until markets can put to bed the angst surrounding the looming recession, especially if the Chinese economy can offer evidence of a broader and more resilient recovery.”

U.S. debt-ceiling negotiations in Congress have also been in focus as traders wait to see how the impasse will be resolved.

Debt-ceiling discussions have “progressed in the right direction,” StoneX’s Kansas City energy team, led by Alex Hodes, wrote in Friday’s newsletter.

“Investors have seemed shy of this market with the risk of both the U.S. debt default and the Federal Reserve adding higher probability of another round of interest rate hikes,” they said.

Dallas Fed President Lorie Logan said Thursday that she’s concerned about whether inflation is falling fast enough and that the economic data don’t yet support a pause in interest-rate hikes.

Fed Chair Jerome Powell on Friday said economic data have continued to support the Fed Open Market Committee’s view that bringing inflation down will take some time. He also confirmed that the central bank has not already decided what to do in June.

On Friday, Republican Rep. Garret Graves of Louisiana, however, said debt-ceiling negotiations are at a “pause.”

Crude prices were having a great week as the U.S. economic outlook “dramatically improved” as lawmakers seemed likely to reach a deal on the debt ceiling, said Edward Moya, senior market analyst at OANDA, in a market updated, but “debt ceiling optimism quickly disappeared on Friday and that sent oil prices sharply lower.”

Overall for the week, crude-price action was somewhat “muted,” Troy Vincent, senior market analyst at DTN, told MarketWatch. That was “despite wildfires in Canada shutting production and Kurdish oil exports from Turkey still stranded amid pipeline disputes.”

Read: Turkey’s runoff presidential election further complicates the restart of a key oil pipeline

That “speaks to the broader worries about the outlook for demand as we work into the second half of the year,” Vincent said.

Data from Baker Hughes
BKR,
-0.04%
Friday showed a third-straight weekly decline in the number of active U.S. rigs drilling for oil — down 11 to 575 this week, but the news, which hinted at a potential production slowdown ahead, didn’t appear to provide much support for oil prices. The natural-gas rig count was unchanged at 141 after dropping by 16 the week before.

Natural-gas prices lost about a penny Friday after settling Thursday with a gain of nearly 10%, contributing to a hefty increase for the week.

The Energy Information Administration on Thursday reported a smaller-than-expected increase of 99 billion cubic feet in natural-gas inventories for the week ending May 12.

That “kicked off the move higher” as the market was looking for an injection somewhere around 108 billion cubic feet, StoneX’s Kansas City energy team said.

“However, the situation with the wildfires in Alberta is still precarious,” they said. “Gas flows, in addition to oil flows, out of this main producing region and into the U.S. have slowed, according to a Reuters report.”