Oil pares weekly loss as tightening market vies with hawkish Fed

Oil rose, paring a weekly loss driven by the Federal Reserve flagging a further rise in US interest rates this year, which damped appetite for risk assets and overshadowed physical tightness in the crude market.

West Texas Intermediate climbed above $90 a barrel on Friday, trimming a weekly drop to less than 1%. The Fed signaled borrowing costs will stay higher for longer, aiding the dollar and dimming the allure of commodities including crude. Technicals had also been indicating that oil’s gains were overdone.

Still, there are plenty of signs of tightness in the physical market. Russia announced a temporary ban on diesel and gasoline exports on Thursday, lifting fuel prices. In addition, US crude stockpiles posted another decline, and oil’s backwardated timespreads point to strong competition for near-term supplies.

Crude has rallied strongly this quarter as Saudi Arabia and Russia extended their production curbs through the end of the year. The outlook for demand has also improved, with refiners in China, the world’s largest oil importer, ramping up processing to a record. The backdrop has prompted Chevron to Goldman Sachs Group to make the case for a return of $100 oil.

“Crude’s relentless rally of the past few weeks has run out of steam, but as yesterday’s choppiness illustrated, the consolidation phase may be rocky,” said Vandana Hari, founder of consultancy Vanda Insights. “Continued nervousness over supply fragility may prevent a sizeable or sustainable pullback.”

On Russia’s product shipment ban, both JPMorgan Chase & Co. and industry consultant FGE said they didn’t expect the prohibition to last for long. The curb will be in place for only a “couple of weeks, until harvest concludes in October,” JPMorgan analysts including Natasha Kaneva said in a note.

In the Middle East, meanwhile, US officials met with Iraqi Prime Minister Mohammed Shia Al-Sudani for talks, and emphasized the urgency of reopening an Iraq-Turkey crude pipeline as soon as possible, the White House said.

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