Oil scores fifth straight weekly gain as market set to stay undersupplied (NYSEARCA:XLE)

Energy (NYSEARCA:XLE) led the week’s S&P sector standings, +8.2%, as U.S. crude oil climbed to its highest level in more than 11 weeks with continued signs of tight fuel inventories as summer driving season begins this Memorial Day weekend.

“You have to assume that things will get worse,” S&P Global’s Daniel Yergin said this week, as the synchronized run-up in oil, natural gas and coal prices makes the current energy crisis the world’s worst since the 1970s oil shocks.

July WTI crude (CL1:COM) posted its fifth straight weekly gain, +4.3% to $115.07/bbl, the best close for a front-month contract since March 11, and the outlook remaining bullish for the near-term.

The December-December spread, used by traders to gauge the health of the market, widened to a new record high on Friday, Bloomberg reported.

U.S. natural gas (NG1:COM) jumped 6.5% for the week, its 12th increase in the past 15 weeks, due largely to Europe’s stated desire to replace Russian gas flows with LNG from the U.S. or other friendly places.

“The U.S. driving season and strong travel demand should help [oil prices],” UBS analyst Giovanni Staunovo says. “With supply growth lagging demand growth, the oil market is likely to stay undersupplied.”

With the average price of regular unleaded gasoline in the U.S. at a record $4.60/gal, the Biden administration is said to be reaching out to oil companies to inquire about restarting shuttered refineries.

More than 1M bbl/day of U.S. oil refining capacity (~5% overall) have shut since the start of the pandemic, and global capacity has shrunk by an additional 2.1M bbl/day, energy consultancy Turner, Mason & Co. estimates.

“The OPEC+ meeting is the key event to watch next week,” Oanda’s Craig Erlam says, “but even if we get a commitment to increase targets – which is unlikely – that will only likely increase the amount to which they’ll fall short of them.”

The week’s top 10 gainers in energy and natural resources: (NYSE:PLG) +48.1%, (NYSE:LPI) +35.4%, (HMLP) +34.2%, (CRK) +33%, (SM) +32.3%, (SWN) +31.4%, (FRO) +30.8%, (ESTE) +29.6%, (RRC) +28.3%, (AR) +26.8%.

The week’s top 3 decliners in energy and natural resources: (NAT) -13.8%, (IREN) -7.7%, (PBR) -7.5%.

Source: Barchart.com