Oil poised for fifth weekly gain ahead of summer driving season

Oil is heading for a modest fifth weekly gain before the US summer driving season kicks off this weekend, with motorists facing soaring costs on the back of tightening stockpiles.

West Texas Intermediate futures fluctuated near $114 a barrel on Friday after closing 3.4% higher in the previous session. Nationwide gasoline stockpiles are at the lowest seasonal level since 2014, while diesel supplies are even tighter in some regions, helping push prices at the pump to records.

Fuel markets have tightened globally following Russia’s invasion of Ukraine in late February, which has upended trade flows and fanned inflation. The Biden administration is reaching out to oil companies to inquire about restarting shuttered refineries, according to a person familiar with the matter.

“Investor appetite for risk is back on, but there are fundamental factors helping oil too, said Giovanni Staunovo, an analyst at UBS AG in Zurich. “With the driving season coming up, refineries coming out of maintenance and the weather in the Middle East getting warmer, oil demand will ramp up — and oil inventories are low.”

Oil’s fifth weekly advance would be the best run since February, with futures more than 50% higher this year. Further gains have been capped by a virus resurgence in China, which continues to weigh on the outlook for demand as the world’s biggest crude importer sticks with its Covid Zero strategy.

China may issue state refiners additional fuel-export quotas to clear high inventories that have swelled during lockdowns, according to people familiar with the matter. Volumes and timing remain unclear at this stage, although industry consultant JLC said recently it could total 3.5 million tons.

Oil markets remain in backwardation, a bullish pattern that’s marked by near-term prices trading above longer-dates ones. The prompt timespread for Brent was at $3.48 a barrel on Friday, compared with $2.56 a week ago. For WTI, the gap has widened to almost $3, from $1.75 at the start of the month.

The UK announced that it will impose a 25% windfall tax on oil and gas companies, bowing to mounting pressure to support Britons facing a record squeeze on living standards. That’s prompted BP Plc to review its plans in the UK, while Shell Plc said that “a stable environment for long term investment” was fundamental to its plan to invest in the energy system.

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