(Bloomberg) — Oil headed for the biggest weekly gain since early October on signs of tightening supply and the prospect for improved Chinese demand, despite downward pressure from interest-rate hikes.
West Texas Intermediate futures edged toward $77 a barrel and are up over 7% this week. There are indications that Russian flows to Asia are dipping because of the price cap, while the International Energy Agency predicted this week that oil prices could rally next year as sanctions squeeze the nation’s supply.
China’s rapid dismantling of its Covid Zero policy has prompted optimism over the long-term outlook for demand, although the near-term outlook is uncertain as virus cases surge. Consumption may recover as early as the second quarter of next year, according to Vitol Group’s Asia Head Mike Muller.
A weakening US dollar — with a Bloomberg gauge of the currency still below its 200-day moving average — is also adding to tailwinds for oil, making commodities priced in the greenback cheaper for overseas buyers.
Oil is set to end the year slightly higher following a volatile period of trading that’s been exacerbated by a persistent lack of liquidity. The market is still facing headwinds, with the European Central Bank echoing a warning from the US for more rate hikes, raising concerns of an economic slowdown.
Time spreads continue to signal ample near-term supply, with the gap between the two nearest contracts for WTI and Brent holding in contango. Brent was 12 cents a barrel in contango compared with 50 cents a week ago.
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