Oil market summary: oil spill pushes crude prices higher

Stubbornly high crude oil inventories continued to stymie bulls through the middle of the week, but the market seized on positive economic data to push prices higher toward the end of the week.

The oil spill from a collapsed rig off the Gulf of Mexico coast may also have played a role in firming prices. Analysts said that the spill could have a short-term impact on supply if it interfered with oil deliveries to Gulf coast refineries, and a longer-term impact if it led to new restrictions on offshore drilling.

The gains on Thursday and Friday enabled oil futures to offset the decline in the first part of the week and finish higher on the week, with the West Texas Intermediate benchmark June contract settling at $86.15 a barrel on Friday, compared with $85.12 a week ago. The contract traded below $82 at one point during the week.

The news Friday that consumer spending powered US GDP growth to a 3.2% annual rate in the first quarter spurred oil prices to further gains after Thursday’s report of a continuing decline in jobless claims also boosted the outlook for oil demand. Analysts also cited the Federal Reserve’s upbeat assessment of the economic situation following the Federal Open Market Committee meeting on Wednesday.

But the weekly inventory report from the Energy Information Administration showed crude stocks up nearly 2 million barrels, with inventories at the New York Mercantile Exchange depot in Cushing, Oklahoma up by 450,000 barrels, and this weighed on the Nymex contract.

The high inventories at Cushing have enabled the European benchmark contract, the ICE Brent crude, which normally trades at a discount to the WTI contract, to overtake the Nymex contract, with the gap this week at times widening to more than $3 a barrel in favor of Brent oil. Brent crude settled at $87.11 on Friday.

The situation has also kept oil futures in contango – later-dated contracts are priced higher than the nearest month because traders expect prices to improve when inventories decline. The July contract on Nymex closed at $88.36 a barrel on Friday.

Oil prices rose on Friday even as stocks plummeted, with the Dow Jones Industrial Index accelerating its decline in late trading to finish down 158 points to 11,008 as financials were hit by news of a criminal probe of Goldman Sachs.

This article was written by Darrell Delamaide for Oilprice.com

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