Oil futures turned higher on Friday, but the U.S. benchmark stayed on track for its biggest weekly drop since April, pressured by the possibility of more crude supplies on the global market and risks to the demand outlook.

Phil Flynn, senior market analyst at The Price Futures Group, attributed the price shift higher, in part, to expectations that oil prices will have to “go up a lot higher” if the market is going to have enough incentive to meet future oil demand.

More than likely, however, the move up was “more technical” as traders start to realize that the move down on the weak consumer confidence number was “probably an overreaction, mainly because retail sales were still very strong,” he told MarketWatch.

West Texas Intermediate crude for August delivery
CL00,
+0.82%

CLQ21,
+0.82%

tacked on 38 cents, or 0.5%, to $72.03 a barrel on the New York Mercantile Exchange after tapping an intraday low of $70.41. The U.S. benchmark traded down about 3.4% for the week, on track for the biggest weekly fall for a front-month contract contract since the week ending April 9, according to FactSet data.

September Brent crude
BRN00,
+0.63%

BRNU21,
+0.63%
,
the global benchmark, was up 30 cents, or 0.4%, at $73.78 a barrel on ICE Futures Europe, though still down 2.3% for the week, which would be its biggest slide since May.

Oil prices had lost more ground Friday shortly after data showed that U.S. consumer sentiment index from the University of Michigan fell to 80.8 in July from 85.5 in June.

“The shocking drop in consumer confidence really hit” oil, said Flynn. Retail sales, meanwhile went through the roof, but “people were less confident as they were spending money.”

“Regardless, the shocking drop on the University of Michigan consumer confidence caused oil to drop on fears that it would reduce gasoline demand from consumers,” Flynn told MarketWatch. The Energy Information Administration reported on Wednesday a weekly decline in implied motor gasoline demand.

The United Arab Emirates and Saudi Arabia reportedly reached a compromise this week that would allow OPEC+ to further relax production curbs beginning next month, contributing to oil’s price loss this week.

“The fundamental backdrop of the oil market has taken a bearish shift this week as it has become much more likely that the UAE and OPEC+ come to a formal agreement and begin to increase oil production each month for the remainder of the year,” analysts at Sevens Report Research wrote in Friday’s newsletter.

Meanwhile, the rising number of COVID-19 case globally has climbed on the heels of the spread of the delta variant, raising concerns for renewed economic restrictions that would limit demand for energy.

“The spread of the delta variant and subsequent new economic restrictions overseas paired with the disappointing demand metrics in the EIA data this week are weighing on the demand outlook for the market,” the analysts at Sevens Report Research wrote.

Crude prices had fallen sharply on Wednesday in part due to the fall in fuel demand, but also because of reports that the U.A.E. and Saudi Arabia had reached a compromise in their dispute over output cuts. The deal would reportedly allow the U.A.E. to use a higher baseline to determine its output level beginning in April. OPEC+ has yet to ratify the deal, which would see the group further relax its existing output cuts by around 400,000 barrels a day per month from August through December, adding around 2 million barrels a day of production by the end of the year.

“All signs indicate that OPEC+ is heading for a potential compromise agreement that will allow U.A.E. to secure a baseline adjustment, but other producers will undoubtedly seek similar treatment and potentially prolong the deliberations” heading into an August meeting, wrote analysts at RBC Capital Markets, in a note.

The fall in crude prices, meanwhile, “is remarkable in view of the steep decline in U.S. crude oil stocks and the prospect of a marked rise in oil demand and a sizable supply deficit in the months until year’s end,” wrote Carsten Fritsch, analyst at Commerzbank, in a note.

Fritch noted that OPEC, in its monthly report Thursday, forecast oil demand to rise to 99 million barrels a day by the end of 2021, around 5 million barrels a day higher than in the first six months of the year. OPEC looks for demand to hit pre-pandemic levels in 2022, topping 100 million barrels a day later in the year.

Back on Nymex, August gasoline
RBQ21,
+0.54%

rose 0.7% to nearly $2.27 a gallon, poised for a weekly loss of 1.2%, and August heating oil
HOQ21,
+0.44%

lost 0.5% to $2.12 a gallon, trading around 1.4% lower for the week.

August natural gas
NGQ21,
+1.27%

traded at $3.66 per million British thermal units, up 1.3% in Friday dealings, though down 0.4% for the week.

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