Crude keeps climbing on geopolitical risks, tight supply but decline seen ahead

Crude oil futures edged higher on Friday and extended their weekly winning streak to four, marked by a surge in Mideast tensions that sparked fears of a wider war as well a tightly supplied global market and signs of strong demand.

Any Iran attack carried out on Israeli soil would mark a “definite escalation” of the proxy war between the two countries, concerns that have sent the market into “risk aversion mode, causing stocks to sell off [and] oil to rally as people prepared for what could be a major price spike if this confrontation happens,” Price Futures Group’s Phil Flynn said.

Middle East tensions from the Israel-Hamas war have made little impact on oil supply, allowing prices to see a sustainable rise rather than a spike, but direct involvement by Iran could spark a rapid, short-term rise in oil prices to $95-$100/bbl, Swissquote Bank’s Ipek Ozkardeskaya said, according to Marketwatch.

Front-month Nymex crude (CL1:COM) for May delivery edged 0.3% higher on Friday and +4.5% for the week to $86.91/bbl, and front-month June Brent crude (CO1:COM) added 0.5% Friday and +4.8% this week to $91.17/bbl, both at their highest settlement since October 20.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

Geopolitical risk premium remains high, but CIBC Private Wealth senior energy trader Rebecca Babin sees downside risks to a continuation of the oil rally.

“When we get Brent above $90 and a reasonably strong dollar, emerging market importers of crude start to really feel the pinch and you see demand destruction,” she said.

Saudi Arabia’s and United Arab Emirates’ spare capacity and potential unwinding of OPEC+ cuts, and whether the Fed cuts interest rates, are also possible headwinds; those three components could lead longs to take some profit, Babin added.

Capital Economics predicts oil prices will retreat in this year’s H2 and beyond with OPEC+ likely to start unwinding its production cuts over concerns about losing market share, which would “more than cover the modest strengthening in demand we expect as advanced economies start loosening monetary policy.”

The analysts attribute oil’s YTD rally to the Middle East conflict and Ukraine’s strikes on Russian energy infrastructure, along with the OPEC+ cuts, and forecasts Brent crude “will have slipped to $60/bbl by end-2026, from $89 at the time of writing.”

The energy sector, as indicated by the Energy Select Sector SPDR ETF (NYSEARCA:XLE), easily was the week’s best performer among the S&P 500 11 industry groups, +3.9%.

Exxon Mobil (XOM) posted an all-time closing high of $121.37, based on data going back to 1972, according to Dow Jones.

Top 20 gainers in energy and natural resources in the past 5 days: Drilling Tools International (DTI) +56%, Indonesia Energy (INDO) +40.3%, Brenmiller Energy (BNRG) +38%, First Majestic Silver (AG) +32.5%, Mexco Energy (MXC) +31.9%, Grindrod Shipping (GRIN) +31.8%, Coeur Mining (CDE) +29.2%, Foremost Lithium (FMST) +27.1%, Fortuna Silver Mines (FSM) +26.2%, BP Prudhoe Bay Royalty Trust (BPT) +25.9%, Transportadora de Gas del Sur (TGS) +22.8%, Natural Gas Services (NGS) +21.5%, U.S. Goldmining (USGO) +21.4%, North European Oil Royalty Trust (NRT) +17.8%, Imperial Petroleum (IMPP) +17.5%, Endeavour Silver (EXK) +17.4%, Osisko Development (ODV) +17.3%, Marine Petroleum (MARPS) +17%, Dakota Gold (DC) +16.4%, Pan American Silver (PAAS) +16.2%.

Source: Barchart.com