(Bloomberg) — Oil rose this week on signs of tightening in physical markets as traders continued to assess lingering Middle East risks.
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West Texas Intermediate rose slightly to settle just below $84 a barrel, ending a 2% weekly gain for the June contract. A report earlier this week showed U.S. crude inventories fell to their lowest levels since January, while indicators such as WTI cash rolls and key time spreads pointed to supply constraints.
The roll, which reflects the balance of supply and demand in Cushing, Oklahoma, rose to its highest level in two years. Meanwhile, the WTI prompt spread (the difference between the last two contracts) widened to 72 cents on Wednesday from 55 cents last week.
The rise in oil prices has been capped by U.S. economic data showing rising inflation in March, and there are growing concerns that price pressure will continue. The data came as U.S. economic growth slowed and traders lowered their expectations for when the Fed would cut interest rates.
Oil prices have risen this year, supported by supply cuts by OPEC+ and political risks in the Middle East, including rising tensions between Israel and Iran, which helped push Brent crude prices above $90 a barrel earlier this month. Israel is stepping up preparations for a possible all-out war with Hezbollah.
Despite the strength in oil futures, there are concerns in other parts of the oil market as well. A sharp decline in revenues from diesel production has prompted some Asian refiners to cut capacity utilization slightly, potentially putting pressure on regional oil imports. Meanwhile, analysts expect margins for fuel production in Europe to decline.
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–With assistance from Jordan Fitzgerald.
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