NRGU - Oil starting to look oversold as physical market shows price collapse excessive

2023-05-05 19:00:25 ET

Crude oil futures rose Friday to take a bit of the sting off a downbeat week that sent the U.S. contract to its lowest level since late 2021, driven by fears of a recession and risk aversion prompted by turmoil in U.S. banking.

Yet the underlying oil market looks resilient , as China is attracting cargoes as domestic travel rebounds, and traders expect the country's crude purchases will remain high in the coming months.

If Chinese crude oil imports - which nearly reached their June 2020 record level in March - post a strong April report, it could add a dose of optimism to the market.

World oil use remains on track to rise by 2M bbl/day this year to a record 101.9M bbl/day, the International Energy Agency says.

Inventories are tightening around the world, and should deplete further as Saudi Arabia and its OPEC+ partners implement new production cuts, and the group stands ready to intervene further if needed to shore up prices.

The physical market remains strong and supply is "pretty tight," Shell CEO Wael Sawan said this week.

The oil rout is reminiscent of the 13% weekly plunge in mid-March when the banking problems first hit the news, and that drop was followed by a streak of four weekly gains.

Front-month Nymex crude oil ( CL1:COM ) for June delivery rose 4% Friday, as bank failure fears were overtaken by strong jobs data, but sank 7.1% to $71.34/bbl this week, and July Brent crude ( CO1:COM ) added 3.8% Friday but lost 6.2% for the week to $75.30/bbl.

U.S. natural gas futures ( NG1:COM ) climbed Friday along with oil, but suffered a hefty loss on the week, with the front-month June contract -11.3% to $2.137/MMBtu.

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

The Energy Select Sector SPDR ETF ( NYSEARCA: XLE ) closed the week -5.7% .

Top 5 gainers in energy and natural resources during the past 5 days: ( FCEL ) +30.8% , ( METC ) +22.1% , ( LITM ) +20.7% , ( EOSE ) +20.1% , ( SSRM ) +19.7% .

Top 5 decliners in energy and natural resources during the past 5 days: ( ATLX ) -30.6% , ( GTE ) -22.2% , ( OPAL ) -19.9% , ( HPK ) -18.3% , ( BPT ) -17.1% .

Source: Barchart.com

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